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Country Report
China
September 2008
Economist Intelligence Unit
26 Red Lion Square
London WC1R 4HQ
United Kingdom
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ISSN 1473-897X
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China
1
China
Executive summary
2
Highlights
Outlook for 2008-09
3
4
6
Political outlook
Economic policy outlook
Economic forecast
Monthly review: September 2008
10
11
14
The political scene
Economic policy
Economic performance
Data and charts
17
18
19
21
22
Annual data and forecast
Quarterly data
Monthly data
Annual trends charts
Monthly trends charts
Country snapshot
23
Editors:
Editorial closing date:
All queries:
Next report:
Monthly Report September 2008
Political structure
Duncan Innes-Ker (editor); Gerard Walsh (consulting editor)
August 22nd 2008
Tel: (44.20) 7576 8000 E-mail: [email protected]
To request the latest schedule, e-mail [email protected]
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© The Economist Intelligence Unit Limited 2008
2
China
Executive summary
Highlights
September 2008
Outlook for 2008-09
• Efforts to move economic growth on to a more socially and environmentally
sustainable path, which are championed by the president, Hu Jintao, will
guide government policy in 2008-09.
• Accountability will improve within the ruling Chinese Communist Party, but
wider reforms to increase democracy will not occur. The campaign against
official corruption will be sustained.
• Ethnic tensions will remain high, especially in Xinjiang and Tibet, but unrest
in these regions will not threaten national political stability.
• The government budget is forecast to remain in the black in 2008-09,
following a surplus of 0.7% of GDP in 2007.
• The Economist Intelligence Unit expects real GDP growth to moderate to 9.8%
in 2008 and 8.5% in 2009, largely owing to the weaker outlook for net exports.
• We now expect consumer price inflation to average 6.7% in 2008. The annual
rate of inflation is expected to slow in the second half of 2008. Average
inflation will moderate to 4.5% in 2009, owing to low food price inflation.
• China!s current-account surplus will remain substantial during the forecast
period (owing mostly to the huge trade surplus), although it will fall to the
equivalent of 8.3% of GDP in 2008 and 6.3% in 2009.
Monthly review
• A series of terrorist attacks in Xinjiang province occurred around the start of
the Olympic Games in early August.
• The Olympic Games have generally been perceived as a success, although the
government!s handling of reporters and protesters has been criticised.
• Consumer price inflation moderated to 6.3% year on year in July, from 7.1% in
June, as food price rises decelerated.
• Government statements have appeared to suggest that sustaining economic
growth, rather than reining in inflation, is once again the administration!s
main goal.
• Several new initiatives have been launched to provide relief to the struggling
small and medium-sized enterprise sector, especially in coastal provinces.
• Export tax rebates have been raised for some labour-intensive industries,
notably textiles, although those for some polluting and energy-intensive
products have been further reduced.
• The stock of unsold cars has reached a four-year high, but investment in
vehicle production remains strong.
Monthly Report September 2008
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China
3
Outlook for 2008-09
Political outlook
Domestic politics
The government is enjoying a period of strong public support, following the
success of the Olympic Games in China!s capital, Beijing, in August and the
competent handling of the response to the massive earthquake in Sichuan in
May. Despite the questions about issues such as human rights that have been
raised in the foreign press, domestic opinion has been firmly behind the
government. The ending of the Olympics will give government officials
considerably more time to devote to other political goals. There is speculation
that the president, Hu Jintao, will use the opportunity of the coming period,
during which relatively few politically sensitive events at the national level are
due to take place, to launch a major policy drive.
Substantial reforms seem unlikely, however. Usually these are preceded by
more localised experiments, but there are few pilot studies being carried out at
the regional level of sufficient scale to be expanded into a nationwide
programme. Despite this, advocates of reform are likely to use this window of
opportunity to promote debate about political changes that increase accountability and the representation of groups such as migrant workers, and the
number of pilot studies is also likely to increase. Guangdong province may well
serve as a trial ground for many of these efforts. Guangdong!s Chinese
Communist Party (CCP) secretary, Wang Yang, has a reputation as an innovative
political liberal.
In the meantime, the administration will continue to advance its "harmonious
society" policy agenda, which is designed to narrow income disparities,
improve state welfare provision, and boost spending on health and education.
Slowing rates of economic growth give a boost to those who argue for the faster
roll-out of welfare programmes and for increased worker rights. Unrest related
to economic hardship and income disparities remains a threat to the CCP!s hold
on power"albeit one that is manageable at present. Harmonious-society
policies appear to have had some success in terms of reducing the incidence of
rural disturbances. However, urban protests linked to anger over development
projects constitute a new challenge.
There is unlikely to be any repeat of the demonstrations in Tibet on the scale
seen in March-April, and ethnic unrest is not expected to pose a threat to the
government. However, a recent surge in terrorist violence in Xinjiang, another
region whose dominant ethnic group, the Uighurs, chafes under CCP rule,
highlights the fact that ethnic unrest will remain a security concern. The
government is unlikely to offer the kinds of concessions to the ethnic minorities
in these regions that might assuage their concerns, and its strategy of pointing
to strong economic development as a means of justifying its rule has been
undermined by the re-emergence of widespread unrest.
Although there will be no major changes in the national leadership within the
forecast period, future political leaders are emerging. Among those promoted in
Monthly Report September 2008
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China
late 2007 at the 17th party congress and at the National People!s Congress in
March 2008 was Xi Jinping, who became the most senior of the new members
of the politburo standing committee (PSC, China!s top political body) as well as
being appointed vice-president. This has made Mr Xi the leading candidate to
take over the positions of CCP general secretary and state president when the
incumbent, Mr Hu, steps down from the former post in 2012 and the latter in
2013. Mr Xi!s elevation above Li Keqiang, the presumed favourite of Mr Hu
(who also won a place on the PSC, as well as promotion to the position of
executive vice-premier), indicated that the CCP is still seeking to balance the
various factions of the party. The collegiate nature of policy formation is thus
likely to continue in coming years, suggesting that there will be a tendency
towards caution and conservatism. Central government efforts to improve
policy implementation at local level are also likely to be maintained in 2008-09.
Other figures to watch in the outlook period include: Guangdong!s Wang Yang,
Wang Qishan, a former mayor of Beijing, who was promoted to the position of
vice-premier in March and was also given responsibility for the economy and
trade; Bo Xilai, the party secretary of Chongqing municipality; and Li Yuanchao,
the head of the CCP!s organisation department, who may push ahead with
political reforms in the forecast period to strengthen democracy within the
party. All these figures were promoted to the politburo in late 2007. Given
their relative youth, they are likely to feature among the party!s top leadership
in 2012.
International relations
Relations between China and the Taiwan will improve significantly in the
forecast period. This follows the recent election as Taiwan!s president of Ma
Ying-jeou of the Kuomintang (KMT) party, who is strongly in favour of closer
ties with the mainland. With the launch of direct flights between the mainland
and Taiwan and the relaxation of restrictions on investments in China by
Taiwan-based firms, progress is being made towards economic normalisation,
forming a sharp contrast with the tension and rancour that pervaded crossStrait relations for the previous nine years. However, the two sides remain far
apart on the underlying dispute over Taiwan!s sovereignty. China!s ties with
Japan have likewise improved significantly in recent months, but the rapprochement at senior government level obscures continued deep popular
mistrust of Japan. Without a change in public attitudes, minor disputes
between the two countries may escalate quickly, causing their relationship to
deteriorate.
Economic policy outlook
Policy trends
Monthly Report September 2008
Now that inflation is slowing, the government!s focus of attention has reverted
from inflation to maintaining growth. This is likely to mean the gradual
unwinding of price controls that the government has imposed in 2007 and
2008 on a number of products, ranging from food to coal. This will have a
positive impact in terms of removing market distortions. Overall economic
liberalisation, however, appears to be stuttering. Progress on addressing the
major factors distorting the economy, notably the artificially weak renminbi
and excessively low interest rates, remains worryingly slow, increasing the risk
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China
5
that the economy will remain too heavily biased towards investment. The
government!s industrial policy is also far more interventionist than that in any
OECD economy. Although some aspects of its activism"such as the emphasis
on more environmentally and socially sustainable development, and the move
to promote research and development"have much to recommend them, others
are less welcome. The increasing economic nationalism evident in policymaking is a particular worry. The government!s concern about falling equity
prices may also have unfortunate repercussions if it leads officials to impede
the sale of equity stakes in large listed state-owned firms that have recently
become tradable. The sale of these shares would have a beneficial long-term
impact on the country!s stockmarkets and corporate sector.
Fiscal policy
China recorded a fiscal surplus of around 0.7% of GDP in 2007"its first budget
surplus in over 20 years. The government!s "harmonious society" programme
may see the tax system become more of a tool for redistributing funds from
wealthier regions and individuals to the less well off. The programme calls for
expenditure on social welfare"particularly on healthcare, education and
poverty relief for rural regions and other socially deprived areas"to rise rapidly
in the forecast period. Although this will probably happen, and although
revenue growth will slow in 2008-09 in line with a deceleration in economic
growth, the budget should remain in surplus during the forecast period. This
partly reflects the likelihood that the central government will be cautious about
allowing regional governments to ramp up spending. It has concerns that funds
could be used for inappropriate purposes by local authorities unless supervision is first strengthened. Post-earthquake reconstruction is unlikely to strain
the budget, as departments are being asked to cut spending in other areas to
offset the cost.
Monetary policy
Reflecting its concerns about rising inflation and overly rapid growth in GDP
and investment, in December 2007 the government shifted its monetary policy
stance from "prudent" to "tight". Paradoxically, the same month also marked the
last in a series of interest-rate rises, which took the one-year rate on renminbi
deposits to 4.1% and that on loans to 7.5%. Real returns on deposits are thus
negative, which may encourage savings to flow from bank accounts into other
parts of the economy. This could increase the threat of asset price speculation.
However, given the recent poor performance of property and share prices, the
two traditional vehicles for speculation have become less appealing, at least in
the short term.
Rather than using interest rates, the government has relied on credit quotas
applied to the banking sector to restrict liquidity growth. It has also used
issuance of central bank debt and increases in the reserve ratio applying to
commercial banks to sterilise liquidity. The use of such methods, although
likely to continue in the short term at least, is unhelpful from an economic
perspective. Credit quotas disadvantage small and medium-sized firms, the
engine of China!s economic and employment growth, in favour of politically
better-connected state enterprises. The also encourage greater use of informal
and illegal financing methods, undermining the financial sector!s long-term
stability. A more desirable route to achieving the same ends would be to relax
Monthly Report September 2008
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China
credit quotas while raising the interest rate. However, the government and the
People!s Bank of China (PBC, the central bank) fear that higher rates could put
pressure on indebted state enterprises and that they could also attract greater
inflows of hot money, putting upward pressure on the exchange rate.
As inflation has fallen, the hand of those arguing for a loosening of policy, to
support an increasingly beleaguered corporate sector, has been strengthened,
and the PBC relaxed credit quotas slightly in July. Given that further cuts in US
interest rates are expected by end-2008, the PBC is now unlikely to raise local
interest rates for fear of attracting in more hot money. However, rates should
rise in 2009 as those in the US do, offset by an easing of credit quotas. There is
a significant risk that the current dovish line on interest rates could allow
monetary and credit growth to accelerate again, necessitating a sharper upward
adjustment in rates in 2009.
Economic forecast
International assumptions
International assumptions summary
(% unless otherwise indicated)
Real GDP growth
World
OECD
EU27
Exchange rates
¥:US$
US$:€
SDR:US$
Financial indicators
¥ 3-month repo rate
US$ 3-month commercial paper rate
Commodity prices
Oil (Brent; US$/b)
Gold (US$/troy oz)
Food, feedstuffs & beverages (% change in US$
terms)
Industrial raw materials (% change in US$ terms)
2006
2007
2008
2009
5.0
3.1
3.1
4.8
2.7
2.9
3.8
1.7
1.5
3.3
1.2
1.1
116.2
1.256
0.680
117.8
1.369
0.651
105.5
1.540
0.616
101.8
1.520
0.619
0.28
5.03
0.61
5.06
0.73
2.60
0.88
2.75
65.4
604.5
72.7
696.7
110.0
895.7
91.0
848.8
16.1
49.6
30.9
11.2
46.2
5.1
-1.7
-8.5
Note. Regional GDP growth rates weighted using purchasing power parity exchange rates.
Global economic growth (at purchasing power parity exchange rates) is forecast
to slow to 3.8% in 2008 and 3.3% in 2009, sharply lower than the 4.8%
expansion recorded in 2007. Growth in both the EU and the US will be very
weak in 2009, and Japan!s economy is expected to continue to limp along. As a
result, growth in global trade is forecast to slump to 4.4% in 2009, the slowest
rate of increase since 2002. The poorer outlook for OECD market demand in
2009, especially in the EU, China!s largest export market, has led the Economist
Intelligence Unit to revise down sharply its forecast for Chinese export growth
next year. Nevertheless, high local productivity levels mean that exports from
China may well hold up better than those from many other countries. The
surge in global prices for food, oil and raw materials in 2008 has been a
significant contributor to inflation in China; oil prices are forecast to be 51%
higher on average this year than in 2007. However, with prices for oil, soft
Monthly Report September 2008
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7
commodities and industrial raw materials expected to fall back in 2009, this
trend will be reversed next year. Producer prices especially should fall in China
as the cost of raw materials moderates.
Economic growth
Gross domestic product by expenditure
(Rmb bn at constant 1995 prices where series are indicated; otherwise % change year on year)
Private consumptionc
Public consumptionc
Gross fixed investmentd
Final domestic demand
Stockbuildingd
Total domestic demand
Exports of goods & servicesf
Imports of goods & servicesg
Foreign balancef
GDP
2006 a
6,156.7
8.3
2,304.1
8.5
6,551.1
10.9
15,011.9
9.4
308.9
0.4 e
15,320.8
9.6
8,138.7
18.2
-6,680.8
16.0
1,457.9
2.2 e
16,862.9 h
11.6 h
2007 a
6,749.9
9.6
2,520.7
9.4
7,284.9
11.2
16,555.5
10.3
89.0
-1.3 e
16,644.5
8.6
9,722.5
19.5
-7,762.6
16.2
1,960.0
3.0 e
18,869.6 h
11.9 h
2008 b
7,396.6
9.6
2,767.7
9.8
8,042.5
10.4
18,206.8
10.0
140.0
0.3 e
18,346.8
10.2
10,699.4
10.0
-8,576.2
10.5
2,123.3
0.9 e
20,720.1
9.8
2009 b
8,114.1
9.7
3,047.3
10.1
8,806.5
9.5
19,967.9
9.7
175.0
0.2 e
20,142.9
9.8
11,399.3
6.5
-9,301.2
8.5
2,098.1
-0.1 e
22,471.0
8.5
a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts. c Derived from
nominal series and contribution of final consumption to real growth. d Derived from nominal series
and contribution of gross fixed capital formation to real growth. e Contribution to real GDP growth
(as a percentage of real GDP in the previous year). f Derived from nominal series and contribution of
net exports to real growth. g Derived from nominal series deflated by import prices and contribution
of net exports to real growth. h Actual.
China!s GDP growth is set to decelerate sharply from 11.9% in 2007 to 9.8% in
2008 and 8.5% in 2009. The deteriorating outlook for China!s major export
markets will be the most important factor behind the slowdown, with exports
also being hit by the appreciation of the renminbi and rising domestic prices for
land and labour, as well as by increasingly tough regulatory standards. The
combination of cooling export growth and robust demand for imports will
result in a much smaller contribution to overall growth from net external
demand, which accounted for over 3 percentage points of GDP growth in 2007.
Investment will remain the single most important driver of economic growth in
2008-09, supported by government infrastructure works, the low cost of
borrowing, high levels of liquidity in the economy and the financial system!s
bias towards lending for investment. Domestic consumption will also prove
robust, with accelerating government spending and strengthening demand in
rural areas playing significant roles. Private and government consumption
combined will contribute more to growth than investment, signalling the start
of a rebalancing of the economy away from its current overdependence on
investment.
Monthly Report September 2008
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China
The outlook for growth could be upset by a more serious deterioration in
demand in China!s export markets, especially if US import demand were to
contract. Although China survived the last US economic downturn in 2001
largely unscathed, exports now account for a larger share of GDP, so that a
marked slowdown in export growth is likely to have a bigger impact on the
headline rate of economic growth. Another risk is posed by inflation. If
inflationary expectations become entrenched, the government could be forced
to tighten monetary policy aggressively, potentially causing a sharp downturn
in investment and consumption growth. Equity prices and property markets
have cooled significantly since the start of 2008, illustrating how fragile
domestic investor and consumer confidence could prove to be if the public
comes to believe that growth is about to slow dramatically. However, there is
room for the government to use fiscal spending and economic policy changes
to support domestic demand if the outlook deteriorates. Moreover, there are
also upside risks for China!s economy: wage inflation, the development of
the state welfare net and exchange-rate appreciation could cause domestic
consumption growth to exceed forecasts.
Inflation
Although inflation is now decelerating, after reaching an 11-year high of 8.8% in
February, it remains a major concern. Unlike in much of the rest of the world,
the recent surge in prices was linked largely to one-off shocks"notably bad
weather in February and a disease that wiped out much of China!s pig stock in
2007, sending pork prices soaring. As the impact of these events fades headline
inflation is expected to fall throughout the second half of 2008 (inflation
slowed to 6.3% in July). Nevertheless, underlying inflationary concerns remain.
The government announced fuel and electricity price increases in June, and
further rises are expected from September to bring retail prices for fuel and
power closer into line with input costs. Although historically there has been
little correlation between producer and consumer price inflation in China,
soaring producer prices have increased the risk that companies will try to
pass on higher expenses to customers. However, inflation in the cost of
manufactures is likely to remain low, owing to intense competition and strong
investment. Inflation should slow in 2009, to an average rate of 4.5%, owing to
more stable supplies of staple food products, but there is always a risk that
weather problems, such as drought, could affect local food production and
push up prices rapidly. In the longer term the shrinking area of agricultural
land, water shortages, and rising fuel and fertiliser costs will put upward
pressure on food prices.
Exchange rates
The government continues to intervene in the foreign-exchange markets to slow
the renminbi!s appreciation against the US dollar. Although appreciation in
2008 has been faster than in 2006-07, there is still substantial pressure,
especially from abroad, to allow the renminbi to appreciate even more quickly.
Despite significant appreciation of the renminbi against the US dollar since the
start of 2006, the US currency!s weakness has ensured that the renminbi has
not gained greatly on a trade-weighted basis. Although the nominal exchange
rate is set to appreciate by 9.6% against the US dollar in 2008, when it will
average Rmb6.94:US$1, the renminbi will depreciate against the euro and the
yen. Appreciation against the US dollar will continue at a slower rate in 2009,
Monthly Report September 2008
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China
9
but the US currency!s rise will mean that the renminbi will strengthen
significantly against the euro. Faster appreciation would be desirable in order to
help cut the huge surpluses on China!s capital and current accounts, which
complicate the government!s efforts to manage domestic monetary policy.
Nevertheless, given government caution over appreciation, it appears that for
the most part the realignment of China!s trade-competitiveness will occur
through shifts in exporters! costs within China. As the trade surplus begins to
fall in 2008-09, consensus about the degree to which the renminbi is
overvalued will dissipate, and speculative hot money inflows should weaken.
This will support a slower rate of appreciation in real trade weighted terms in
2009 than in 2008.
External sector
The trade surplus will remain huge, but in response to rising domestic costs,
policy changes, the renminbi!s appreciation and weaker world demand, export
growth will cool sharply in 2008-09. Coupled with persistently strong domestic
demand, this will ensure that the trade surplus falls in 2008 for the first time
since 2001. A tightening of China!s visa policy in 2008 is expected to wipe out
most of the gains in tourism earnings from the Olympics, leaving the services
account in deficit throughout the outlook period. The surplus on the income
account will remain substantial in 2008-09, reflecting earnings from the
country!s growing stock of foreign-exchange reserves and income from rising
overseas investment, although the weaker external environment means that
dividend earnings from investment abroad will weaken in the outlook period.
The current-account surplus is forecast to fall to the equivalent of 6.3% of GDP
in 2009, from 11.5% in 2007.
Forecast summary
(% unless otherwise indicated)
Real GDP growth
Industrial production growth
Gross agricultural production growth
Unemployment rate (av)
Consumer price inflation (av)
Consumer price inflation (year-end)
Short-term interbank rate (year-end)
Government balance (% of GDP)
Exports of goods fob (US$ bn)
Imports of goods fob (US$ bn)
Current-account balance (US$ bn)
Current-account balance (% of GDP)
External debt (year-end; US$ bn)
Exchange rate Rmb:US$ (av)
Exchange rate Rmb:¥100 (av)
Exchange rate Rmb:€ (year-end)
Exchange rate Rmb:SDR (year-end)
2006 a
11.6
16.6
5.0
9.5 c
1.8
2.8
6.1
-0.8
969.7
751.9
253.3
9.1
322.8
7.97
6.86
10.31
11.75
2007 a
11.9
18.5 c
3.7 c
9.2 c
4.8
6.7
7.5 c
0.7
1,220.0
904.6
371.8
11.5
350.1 c
7.61
6.46
10.67
11.66
2008 b
9.8
15.7
3.4
9.0
6.7
3.5
7.5
0.6
1,463.9
1,182.6
343.6
8.3
425.3
6.94
6.58
10.43
10.98
2009 b
8.5
13.0
4.1
8.9
4.5
4.1
7.9
0.6
1,611.8
1,369.5
302.4
6.3
473.2
6.73
6.61
9.88
10.67
a Actual. b Economist Intelligence Unit forecasts. c Economist Intelligence Unit estimates.
Monthly Report September 2008
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China
Monthly review: September 2008
The political scene
Ethnic tensions erupt into
terrorism in Xinjiang
Ethnic tensions in the north-western province of Xinjiang erupted into an
outbreak of terrorist incidents in early August, apparently designed to coincide
with the Olympic Games being held in the capital, Beijing. State-owned media
reported that militants from the Uighur ethnic group had launched an attack on
a police facility near Kashgar, killing 16 border police and wounding 16 others.
This represented the most serious outbreak of violence in the province for
years, and was one of the most deadly terrorist incidents that the country has
experienced in the post-reform era. The attack was followed by a series of blasts
in Kuqa in southern Xinjiang, apparently targeting houses and commercial
properties owned by ethnic Han Chinese, which left at least one person dead.
A number of perpetrators were said to have been killed as police pursued the
groups responsible for the two attacks. A further incident saw three guards
stabbed to death and another injured in an attack at a road checkpoint in the
province.
The technical sophistication of the attacks was not high"they involved knives
and crude homemade explosives. However, the co-ordination of several attacks
suggests a new phase in the previously low-key insurgency in Xinjiang. Shortly
before the Olympics, a shadowy ethnic-Uighur group terming itself the
Turkestan Islamic Party claimed responsibility for alleged terrorist incidents in
several Chinese provinces. It also claimed to have plans to disrupt the
Olympics with terrorist attacks. However, it is unclear whether the group was
responsible for the recent surge in violence, as individual and groups involved
in Xinjiang!s separatist movement often make inflated claims. The government
has said that Xinjiang separatists have ties to the al-Qaida international terrorist
network, but the evidence for this remains inconclusive. Security in Beijing was
tightened for the Olympics partly in response to government concerns about
terrorism, and there were several anecdotal reports of Uighurs being forced to
leave the capital during the period of the games. Prior to the bombings in
August, some had argued that the government was trying to talk up the risk of
terrorism to justify the security clampdown ahead of the Olympics.
The Uighur people constituted the vast majority of Xinjiang’s population in
1949, when only 6% were from the Han ethnic group that accounts for the vast
majority of China!s total population. However, nearly one-half of the region’s
population is now Han. China can point to substantial economic development
in the region in recent years, but many of the fruits of this growth have been
claimed by Han immigrants. Uighurs are increasingly resentful of their perceived economic marginalisation and employment discrimination in a region
that they view as their homeland. Tensions have not been alleviated by the
tough line taken by recent provincial leaders in Xinjiang, who have cracked
down on cultural and religious autonomy in the region. Xinjiang University,
which was once bilingual, has in recent years been forbidden to teach in
Uighur, and a number of government policies are in place to regulate the
Monthly Report September 2008
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China
11
practice of Islam (most Uighurs are Muslim). Mosques may be attended only by
adults, and sermons are required to be recorded (and in some cases preapproved by the government). Some fear that this has encouraged the
radicalisation of younger Uighurs and a move towards more public demonstrations of piety, such as wearing of the full veil by women.
Olympic protesters face
detention and harassment
Although the Olympic Games have been a televisual success and the triumphs
of China!s athletes have boosted national pride, the government has maintained a tough stance against demonstrators during the event. A number of
foreign protesters have been deported after launching small-scale actions in
protest against China!s policies regarding abortion and Tibet. The government!s
initiative to set aside three "protest parks" in Beijing to allow those to wish to
protest a setting in which to do so has also proven to be a cynical exercise. The
state-owned Xinhua news agency was forced to admit that, of 77 applications to
conduct a protest, two had been suspended, one rejected and 74 resolved
through other means. Although the government claimed that these other
means involved discussions with officials, the reality appears to be that
coercion was a key factor in deterring potential demonstrators. A number of
those who applied to protest have since been detained by police.
Although restrictions on foreign journalists have been relaxed for the games,
they have also continued to face more harassment than the government earlier
promised. There have been several reports of official interference with foreign
journalists, including the wrestling of a British journalist to the ground while
covering a pro-Tibet protest in Beijing. Two Japanese journalists were beaten in
the far western region of Xinjiang for attempting to report on a terrorist attack
in the city of Kashgar. A member of the International Olympic Committee
(IOC) later told Australian television reporters that there was considerable anger
on the committee that Chinese promises on press freedom had not been kept,
and that the IOC would never have awarded the games to China had it known
that the government did not intend to keep its promises to the committee on
the issue. In public, however, the IOC continues to stress that it believes China
has been a good host for the games.
Economic policy
Monetary policy eases, but
only slightly
Monthly Report September 2008
In the third week of July the Central Leading Group of Financial and
Economic Affairs within the politburo met to analyse the impact of economictightening measures on the export sector and to adjust economic policy
appropriately. The session followed inspection tours to several coastal
provinces by China!s top politicians, including the premier, Wen Jiabao, and
the president, Hu Jintao. After the gathering, government rhetoric appeared to
signal a shift away from citing inflation as the primary challenge facing the
economy, instead emphasising the need to maintain stable but rapid
economic growth (albeit while containing inflationary pressures). In line with
this change of emphasis, a series of adjustments to government policies
regarding credit quotas and export tax rebates were subsequently announced.
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12
China
In practice the relief measures were precisely targeted, favouring narrow
sectors"notably the labour-intensive textile industry, and small and mediumsized enterprises (SMEs). Although the measures clearly represent a slight
loosening, claims of a major shift have not yet been borne out. Government
officials have talked up the changes in an effort to shore up public confidence
in the economy, but the overall balance of policy remains relatively tight,
reflecting the threat from underlying inflationary pressures.
The government comes to the
rescue of the SME sector
The People!s Bank of China (PBC, the central bank) announced in early August
2008 that it would raise lending quotas for both domestic and foreign banks.
National-level banks will be granted a 5% increase in the amount of credit that
they are permitted to extend, while the level will rise by 10% for local-level
commercial banks. The quota for locally incorporated foreign banks will also
be raised. The PBC added the caveat that the additional credit should be
channelled towards SMEs, the agricultural sector and reconstruction work in
the zone affected by May!s earthquake disaster.
Credit facilities for small businesses in China have been particularly strained by
the restrictions that the central government imposed on lending in 2007 and
early 2008. However, even before they were put in place Chinese banks tended
to have an aversion to lending to SMEs, so forcing smaller enterprises in many
sectors to rely on informal banking channels. This type of company has also
been affected most severely by the surging cost of production in China. When
faced with rising raw-material costs, soaring wage bills, renminbi appreciation,
and tighter regulation of labour and environmental standards, larger firms can
force suppliers to bear some of the extra cost burden, and are more able to pass
rising costs on to consumers. Smaller firms, lacking these options, have faced a
choice between closure and consolidation. According to the National
Development and Reform Commission (NDRC, China!s top economic planning
body), over 67,000 SMEs (including over 10,000 textile manufacturers) were
forced to close in the first half of 2008. This has been a concern for the
government, as these enterprises have been an engine of both economic and
employment growth.
The SME sector has also been a major driving force behind China!s export
growth, but it was hit hard by the removal or reduction of export tax rebates for
many types of export products last year. In July 2008 the State Administration
for Taxation announced a slight adjustment to the tax rebate system for
exporters, notably for labour-intensive manufacturing. Export tax rebates will
be raised for silk, wool and other textiles, as well as for bamboo-based items.
However, the government!s efforts constitute an adjustment of policy, designed
to favour employment-intensive sectors, rather than a policy reversal; the
increase in the rebate for textiles from 11% to 13%, for example, will provide only
minimal relief. Meanwhile, the emphasis on advancing basic policy goals was
underlined by the reduction in rebates for a number of energy-intensive and
polluting products, such as high-grade silver and zinc and some types of battery.
Local initiatives provide
further support to SMEs
Monthly Report September 2008
Two of the provinces most severely affected by changing government policy
and rising costs in 2007-08 are Zhejiang and Guangdong, whose industrial
sectors include a disproportionately large number of SMEs engaged in low
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© The Economist Intelligence Unit Limited 2008
China
13
value added manufacturing and export-processing. Governments at both
central and local levels have been looking to provide support to these
economically important regions.
Zhejiang has many family-owned enterprises and (partly as a result) a large
number of informal banking channels that have offered innovative, albeit
limited, solutions to credit shortfalls. In the past year these channels have been
frequently used for trade financing. Because such lending is technically illegal,
there are no accurate figures showing how extensive such financing is, but
government officials acknowledge that the pool of funding in the city of
Wenzhou alone is worth several hundred billion renminbi. In mid-July local
officials at the China Banking Regulatory Commission in Wenzhou confirmed
that the city would start a pilot programme to license such local lending groups,
permitting them to borrow capital from banks, thus providing a more legitimate
source of funds for local SMEs.
In addition, in Guangdong the provincial party secretary, Wang Yang, has
announced the launch of a Rmb40bn (US$5.8bn) package to help SME plants
in the province!s Pearl River Delta to relocate to cheaper parts of Guangdong.
They will also be given discounts on water and electricity fees in the new
locations. The need for assistance has been highlighted by a surge in factory
closures. Mr Wang noted that over 30,000 enterprises had shut so far in 2008,
although he added that 40,000 new ones had been started.
China takes a hard line in the
Doha round
Despite considerable pressure from the US and the EU at the Doha round of
World Trade Organisation (WTO) negotiations in Geneva, Switzerland, in late
July, China (along with India) maintained its support for a special safeguard
mechanism to protect subsistence farmers in developing countries against
temporary surges in cotton and rice imports that would harm domestic
producers. China’s hard line appeared to surprise many negotiators, as the
country had not previously highlighted the strength of its commitment to the
safeguard mechanism.
The issue of agricultural tariffs and protective measures for farmers in both
OECD and developing economies has long been contentious, but China!s level
of fiscal and tariff support for agriculture is low relatively to that in many
other developing countries. When China joined the WTO in 2001, it also
agreed to allow relatively open access to many of its agricultural-product
markets. Partly this reflected political motives. American cotton imports, for
example, were permitted despite their negative impact on Xinjiang!s cotton
sector, to placate the US in response to its complaints about China!s trade
surplus. However, the surge in global food prices appears to have made China
more concerned about protecting its right to take measures to ensure longterm food security"including steps to ensure that local grain production is not
undermined by imports.
Monthly Report September 2008
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14
China
Economic performance
Concerns about inflation
recede
Consumer price inflation decelerated in July, to 6.3% year on year"the third
successive month of lower figures. The fall in inflation was expected, as
supplies of staple food products are starting to recover following disruptions
in 2007-08. Notably, pig herds are now being replenished in the wake of the
outbreak of blue-ear disease that decimated stocks in 2007 and drove up pork
prices. Price inflation for vegetables has also slowed from its peak in February
2008, when ice storms damaged fields and disrupted supply chains across
much of China. Prices have also been curbed by surging imports. Swiss-based
Global Trade Information Services recently noted that China recorded a
deficit of US$5.8bn on trade in agricultural products in the first half of this
year, compared with a surplus of US$2.5bn in January-June 2007. The value of
imports rose by 72% in January-June, while exports were up by 12%. Food
price inflation stood at 14.4% in July, compared with 23.3% in February.
A deceleration in broad money (M2) supply growth, from 18.9% year on year
in January to 16.3% in July, has been seen by some as indicating that the
monetary forces pushing up inflation are dissipating. However, underlying
inflationary pressures remain a worry. Non-food inflation has continued to
edge up, reaching 2.1% in July, compared with 1.5% in January. Moreover,
although the direct linkage between producer price inflation and consumer
prices in China has historically been weak, there is mounting concern that
manufacturers may be forced to pass on rising costs to customers. Producer
price inflation reached a 12-year high of 10.1% in July. Several multinational
companies have already blamed rising costs for large increases in the price of
their products, both in China and around the world. A US-based consumer
goods firm, Proctor & Gamble, said in July that it would raise prices by as
much as 10% in China, in line with global price increases for its products. Two
US-based fast-food retailers, KFC and McDonald!s, have also raised prices this
year to offset rising commodity costs, as has a US-based chemicals giant, Dow.
Industrial output growth
slows
Monthly Report September 2008
Industrial output growth slowed to 14.7% year on year in July, in a marked
decrease from the rate of 16% recorded in June. This may reflect the impact
that higher costs and weaker external demand have had on the export sector.
But it may also be the result of the temporary impact of the disruption to
industrial activity caused by the Olympic Games in Beijing. Several industries,
notably power generation, cement, construction, metallurgy and chemicals,
have faced restrictions in a swathe of provinces across northern China, as the
government has sought to reduce pollution during the games. Transport
logistics have also been heavily disrupted, and not just because of restrictions
on vehicles in and around Beijing"ports across the country, for example, have
become more cautious about allowing in certain types of chemicals. The
slowdown comes at a particularly sensitive time, as factories are usually
revving up output to supply goods for the Christmas retail season at this time
of year. Nevertheless, while Olympic effects are likely to hit production in
August and September, some of the loss may well be made up in subsequent
months.
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China
15
Despite the slowdown in industrial output growth, urban fixed investment was
up by 27.3% year on year in January-July, with major increases in investment in
heavy industry. Investment in metals, mining and smelting was up by 192% year
on year in July (compared with year-on-year growth of 37% in the first half of
2008), while investment in electricity generation was up by 23% in July
(compared with 7.5% in January-June). In comparison, investment in exportreliant light industries grew by only 9% year on year in July, slowing from 29%
in the first half of 2008. Investment growth in real estate also slowed in July, to
13%, down from 35% in January-June.
Firms adopt new labour
practices
Amid the increasingly tough corporate climate, some companies are being
forced to depart from traditional approaches to labour issues. A US-based
retailer, Wal-Mart, renowned outside China for its tough stance against the
formation of unions by its staff, has become an unlikely pioneer in collective
bargaining with its workforce in China. The company recently signed an
agreement for a 9% rise in salaries covering 8,500 employees in Shenzhen.
According to the agreement, annual wage negotiations are to take place, and
the wage rates offered by Wal-Mart are to be higher than the minimum wage
rates for the city (Shenzhen’s minimum monthly wage is the highest in China,
currently standing at Rmb1,000, or US$145). The agreement also covers hours
of employment and benefits. Wal-Mart has signed similar agreements with its
employees in Shenyang and Quanzhou.
Other firms are adopting a more legally dubious approach. Cost pressures on
labour-intensive firms, notably in southern China, have seen a growing
number of companies taking on illegal foreign labour, most frequently
Vietnamese and Burmese nationals. The problem has been noted in
Guangdong, where police report having investigated 7,940 cases involving
foreigners suspected of illegal immigration last year. Crossborder influxes of
such workers have increased following the devastation wreaked by Cyclone
Nargis in Myanmar earlier this year and the economic slowdown in Vietnam.
The local car-manufacturing
industry faces capacity issues
One of the sectors that has been negatively affected by weakening domestic
demand rather than troubles abroad is the automotive industry. According to
the NDRC!s chief automotive analyst, Chen Xiaodong, vehicle sales rose by
19% year on year in the first half of 2008, to 5.2m units. However, this was
down from growth of 23% in the same period of 2007, and the stock of unsold
vehicles hit 170,000, the highest level since June 2004. Despite rising
inventories, investment in the sector is increasing, as manufacturers (and their
suppliers) experience rising demand for commercial vehicles and come to
view China as offering greater potential for long-term car sales growth than
developed markets in the West.
China had also attempted to force foreign vehicle-makers to shift production
to the country through punitive tariffs on imports of car parts. Although such
tariffs were struck down by a WTO ruling in July, the government has
recently instituted a new "green" tax designed to discourage fuel-intensive
vehicles. This doubled the tax on cars with engine capacities over 4.1 litres to
40%, and raised the levy on those with engines between 3 litres and 4.1 litres
to 25%, up from 15% previously. As most large-engine vehicles are imported,
Monthly Report September 2008
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© The Economist Intelligence Unit Limited 2008
16
China
the measure will increase the cost-competitiveness of smaller vehicles
manufactured locally. In addition, high transport costs for imports and the
growing sophistication of Chinese domestic supply chains are seeing more
foreign carmakers increase production in China. Japan!s Nissan and its local
counterpart, Dongfeng, have announced investment plans for a new plant
making 3-litre engines in Zhengzhou, where they already operate a jointventure plant specialising in light commercial vehicles. The additional capacity
will boost the companies! output in Zhengzhou to 120,000 vehicles a year.
Nissan’s objective is to reach total annual sales of 1m units in China by 2012;
this would represent an ambitious 64% improvement on its 2007 sales
performance.
A UK-based news agency, Reuters, has also reported that Nissan is set to begin
exports of Chinese-made cars in the next few months, initially to Egypt.
Several foreign manufacturers, including General Motors of the US and
Honda of Japan, already export some of their Chinese production, and local
car companies are rapidly increasing vehicle sales abroad.
Monthly Report September 2008
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© The Economist Intelligence Unit Limited 2008
China
17
Data and charts
Annual data and forecast
P ro d uc t io n to rem o v e
GDP
Nominal GDP (US$ bn)
Nominal GDP (Rmb bn)
Real GDP growth (%)
Expenditure on GDP (% real change)
Private consumption
Government consumption
Gross fixed investment
Exports of goods & services
Imports of goods & services
Origin of GDP (% real change)
Agriculture
Industry
Services
Population and income
Population (m)
GDP per head (US$ at PPP)
Fiscal indicators (% of GDP)
Central government revenue
Central government expenditure
Central government balance
Net public debt
Prices and financial indicators
Exchange rate Rmb:US$ (end-period)
Exchange rate ¥:Rmb (end-period)
Consumer prices (end-period; %)
Producer prices (av; %)
Stock of money M1 (% change)
Stock of money M2 (% change)
Lending interest rate (end-period; %)
Current account (US$ bn)
Trade balance
Goods: exports fob
Goods: imports fob
Services balance
Income balance
Current transfers balance
Current-account balance
External debt (US$ bn)
Debt stock
Debt service paid
Principal repayments
Interest
International reserves (US$ bn)
Total international reserves
2003 a
1,648
13,640
10.0
2004 a
1,936
16,028
10.1
2005 a
2,303
18,869
10.4
2006 a
2,774
22,117
11.6
2007 a
3,242
24,662
11.9
2008 b
2009 b
4,160
28,867
9.8
4,838
32,546
8.5
6.3 c
6.0 c
17.0 c
21.9 c
26.5 c
7.1 c
7.3 c
12.4 c
29.2 c
32.6 c
6.7 c
9.7 c
11.5 c
17.6 c
13.5 c
8.3 c
8.5 c
10.9 c
18.2 c
16.0 c
9.6 c
9.4 c
11.2 c
19.5 c
16.2 c
9.6
9.8
10.4
10.0
10.5
9.7
10.1
9.5
6.5
8.5
2.5
12.7
9.5
6.3
11.1
10.0
5.2
11.7
10.5
5.0
13.0
12.1
3.7 c
13.4 c
12.6 c
3.4
10.7
10.3
4.1
9.0
8.8
1,292
3,217
1,300
3,608
1,308
4,186
1,314
4,793 c
1,321 c
5,478 c
1,331
6,101
1,337
6,736
17.5
18.3
-0.8
20.9 c
20.8
20.1
0.7
18.4 c
20.9
20.3
0.6
15.5
21.0
20.4
0.6
13.4
7.31
10.67
6.7
2.5 c
21.0
16.7
7.5 c
6.77
10.43
3.5
7.0
15.4
16.6
7.5
6.63
9.88
4.1
3.7
14.2
12.5
7.9
281.3
1,463.9
-1,182.6
-8.8
24.0
47.1
343.6
242.3
1,611.8
-1,369.5
-16.2
25.3
51.1
302.4
425.3
28.8
19.8
9.0
473.2
32.8
21.7
11.1
2,072.0
2,235.6
15.9
18.1
-2.2
26.8 c
16.5
17.8
-1.3
25.1 c
16.8
18.0
-1.2
23.0 c
8.28
10.44
3.2
2.3
18.7
19.2
5.3
8.28
11.21
2.3
6.1
13.9
14.9
5.6
8.07
9.52
1.7
4.9
11.6
16.7
5.6
7.81
10.31
2.8
3.0
17.9
22.1
6.1
44.7
438.3
-393.6
-8.6
-7.8
17.6
45.9
59.0
593.4
-534.4
-9.7
-3.5
22.9
68.7
134.2
762.5
-628.3
-9.4
10.6
25.4
160.8
217.7
969.7
-751.9
-8.8
15.2
29.2
253.3
208.5
37.0
29.9
7.1
247.7
23.3
16.3
7.0
281.6
27.4
20.8
6.5
322.8
27.9
18.1
9.8
412.2
618.6
825.6
1,072.6
315.4
1,220.0
-904.6
-7.9
25.7
38.7
371.8
350.1 c
30.7 c
20.5 c
10.3 c
1,534.4
a Actual. b Economist Intelligence Unit forecasts. c Economist Intelligence Unit estimates.
Sources: IMF, International Financial Statistics.
Monthly Report September 2008
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© The Economist Intelligence Unit Limited 2008
18
China
Quarterly data
P ro d uc t io n to rem o v e
Output
Real GDP (% change, year on year)
Industrial production, gross value added
(1990 prices; % change, year on year)
Electricity production (% change, year on year)
Prices
Consumer prices (2000=100)
Consumer prices (% change, year on year)
Financial indicators
Exchange rate Rmb:US$ (av)
Exchange rate Rmb:US$ (end-period)
Deposit rate (end-period; %)
Prime lending rate (end-period; %)
3-month interbank rate (av; %)
Lending & deposits (end-period; % change,
year on year)
Total loans
Short-term loans
Medium- & long-term loans
Urban & rural savings deposits
M1 (end-period; Rmb bn)
M1 (% change, year on year)
M2 (end-period; Rmb bn)
M2 (% change, year on year)
Shanghai “A” share price index (end-period;
Feb 21st 1992=100)
Shanghai “A” share price index (% change,
year on year)
Sectoral trends (% change, year on year)
Retail sales, consumer goods
Foreign trade (US$ bn)
Exports fob
Imports cif
Trade balance
Capital flows
Foreign direct investment (US$ bn)
Foreign direct investment (% change,
year on year)
Reserves excl gold (end-period; US$ bn)
2006
3 Qtr
4 Qtr
2007
1 Qtr
2 Qtr
3 Qtr
4 Qtr
2008
1 Qtr
2 Qtr
10.6
10.4
11.7
11.9
11.5
11.2
10.6
10.1
16.2
16.5
14.8
15.3
15.1
12.4
18.3
17.7
18.1
16.3
17.5
16.1
16.6
16.0
15.9
11.9
101.2
1.7
102.4
2.0
104.8
2.8
105.1
3.5
107.4
6.1
109.3
6.7
113.2
8.1
113.3
7.8
7.97
7.91
2.5
6.1
2.9
7.86
7.81
2.5
6.1
2.9
7.76
7.73
2.8
6.4
3.0
7.68
7.62
3.1
6.6
3.1
7.56
7.51
3.9
7.3
3.3
7.43
7.31
4.1
7.5
4.5
7.16
7.02
4.1
7.5
4.6
6.96
6.86
4.1
7.5
4.5
15.8
11.8
21.8
16.0
11,681
15.9
33,187
21.8
15.7
12.6
21.8
14.6
12,604
17.9
34,560
22.1
16.1
14.6
22.6
12.8
12,788
19.8
36,409
17.3
16.5
15.6
23.2
9.4
13,585
20.9
37,783
17.1
17.2
15.4
23.9
6.9
14,259
22.1
39,310
18.5
16.2
16.2
23.5
6.8
15,256
21.0
40,344
16.7
14.8
14.2
23.5
8.8
15,087
18.0
42,306
16.2
14.1
12.7
21.8
14.7
n/a
n/a
n/a
n/a
1,840
2,701
3,346
4,010
5,828
5,521
3,643
2,870
51.6
119.5
145.8
128.1
216.7
104.4
8.9
-28.4
13.8
14.4
14.9
15.8
16.8
19.1
20.6
22.2
262.6
-213.9
48.7
277.9
-210.2
67.7
252.0
-205.8
46.3
294.8
-228.9
66.0
331.4
-257.8
73.6
339.5
-263.5
76.1
305.8
-264.7
41.1
360.5
-302.9
57.6
14.2
20.4
15.9
16.0
15.3
27.6
27.4
25.0
-3.5
990
19.7
1,068
11.5
1,204
12.8
1,335
8.2
1,436
34.8
1,530
72.6
1,684
56.1
n/a
Sources: IMF, International Financial Statistics; China Statistical Information Centre; National Bureau of Statistics, China Monthly Economic Indicators; People's Bank of China, Quarterly
Statistics Bulletin.
Monthly Report September 2008
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© The Economist Intelligence Unit Limited 2008
China
19
Monthly data
P ro d uc t io n to rem o v e
Jan
Feb
Mar
Apr
May
Exchange rate Rmb:US$ (av)
2006
8.07
8.05
8.04
8.02
8.01
2007
7.79
7.76
7.74
7.73
7.67
2008
7.25
7.17
7.08
7.00
6.97
Exchange rate Rmb:US$ (end-period)
2006
8.06
8.04
8.02
8.02
8.02
2007
7.78
7.74
7.73
7.71
7.65
2008
7.19
7.11
7.02
7.00
6.95
Real effective exchange rate (2000=100; CPI basis)
2006
94.09
94.83
94.65
94.28
91.97
2007
96.71
97.25
96.83
96.66
97.80
2008
101.83
103.99 102.55
104.04
n/a
Money supply M1 (% change, year on year)
2006
10.3
12.4
12.8
12.7
14.2
2007
20.1
21.2
19.8
20.0
19.3
2008
20.5
18.9
18.0
18.8
17.7
Money supply M2 (% change, year on year)
2006
23.4
23.0
23.1
23.5
23.7
2007
15.9
17.8
17.3
17.1
16.7
2008
18.9
17.4
16.2
16.9
18.0
Deposit rate (end-period; %)
2006
2.3
2.3
2.3
2.3
2.3
2007
2.5
2.5
2.8
2.8
3.1
2008
4.1
4.1
4.1
4.1
4.1
Prime lending rate (end-period; %)
2006
5.6
5.6
5.6
5.9
5.9
2007
6.1
6.1
6.4
6.4
6.6
2008
7.5
7.5
7.5
7.5
7.5
Industrial production (% change, year on year)
2006
9.8
20.1
17.8
16.6
17.9
2007
n/a
12.6
17.6
17.4
18.1
2008
n/a
15.4
17.8
15.7
16.0
Retail sales of consumer goods (% change, year on year)
2006
15.5
9.4
13.5
13.6
14.2
2007
12.7
16.9
15.3
15.5
15.9
2008
21.2
19.1
21.5
22.0
21.6
Shanghai “A” share price index (end-period; Feb 21st 1992=100)
2006
1,319
1,363
1,361
1,512
1,724
2007
2,928
3,026
3,346
4,035
4,310
2008
4,600
4,563
3,643
3,875
3,603
Consumer prices (av; % change, year on year)
2006
1.9
0.9
0.8
1.2
1.4
2007
2.2
2.7
3.3
3.0
3.4
2008
7.1
8.8
8.3
8.5
7.8
Producer prices (av; % change, year on year)
2006
3.1
3.0
2.5
1.9
2.4
2007
3.3
2.6
2.7
2.9
2.8
2008
6.1
6.6
8.0
8.1
8.2
Monthly Report September 2008
Jun
Jul
Aug
Sep
Oct
Nov
Dec
8.01
7.63
6.90
7.99
7.58
n/a
7.97
7.58
n/a
7.94
7.52
n/a
7.90
7.50
n/a
7.87
7.42
n/a
7.82
7.37
n/a
8.00
7.62
6.86
7.97
7.57
n/a
7.96
7.56
n/a
7.91
7.51
n/a
7.88
7.47
n/a
7.84
7.40
n/a
7.81
7.31
n/a
92.97
99.38
n/a
92.94
99.98
n/a
93.00
100.62
n/a
94.14
100.18
n/a
95.45
99.57
n/a
95.12
99.10
n/a
95.48
100.87
n/a
14.1
20.9
n/a
15.5
20.9
n/a
15.7
22.8
n/a
15.9
22.1
n/a
16.5
22.2
n/a
17.0
21.7
n/a
17.9
21.0
n/a
23.2
17.1
n/a
23.2
18.5
n/a
22.9
18.1
n/a
21.8
18.5
n/a
22.0
18.5
n/a
21.9
18.4
n/a
22.1
16.7
n/a
2.3
3.1
4.1
2.3
3.3
4.1
2.5
3.6
n/a
2.5
3.9
n/a
2.5
3.9
n/a
2.5
3.9
n/a
2.5
4.1
n/a
5.9
6.6
7.5
5.9
6.8
7.5
6.1
7.0
n/a
6.1
7.3
n/a
6.1
7.3
n/a
6.1
7.3
n/a
6.1
7.5
n/a
19.5
19.4
16.0
16.7
18.0
14.7
15.7
17.5
n/a
16.1
18.9
n/a
14.7
17.9
n/a
14.9
17.3
n/a
14.7
17.4
n/a
13.9
16.0
23.0
13.7
16.4
23.3
13.8
17.1
n/a
13.9
17.0
n/a
14.3
18.1
n/a
14.1
18.8
n/a
14.6
20.2
n/a
1,758
4,010
2,870
1,695
4,689
2,912
1,744
5,480
n/a
1,840
5,828
n/a
1,931
6,252
n/a
2,206
5,112
n/a
2,701
5,521
n/a
1.5
4.4
7.1
1.0
5.6
6.3
1.3
6.5
n/a
1.5
6.2
n/a
1.4
6.5
n/a
1.9
6.9
n/a
2.8
6.7
n/a
3.5
2.5
8.8
3.6
2.4
10.0
3.4
2.6
n/a
3.5
2.7
n/a
2.9
3.2
n/a
2.8
4.6
n/a
3.1
5.4
n/a
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© The Economist Intelligence Unit Limited 2008
20
Jan
Feb
Mar
Total exports fob (US$ bn)
2006
65.1
54.1
78.0
2007
86.6
82.0
83.4
2008
109.6
87.3
108.9
Total imports cif (US$ bn)
2006
55.5
51.6
66.9
2007
70.7
58.4
76.7
2008
90.2
78.9
95.6
Trade balance fob-cif (US$ bn)
2006
9.6
2.5
11.1
2007
15.9
23.7
6.7
2008
19.4
8.4
13.3
Foreign-exchange reserves excl gold (US$ bn)
2006
848
856
878
2007
1,107
1,159
1,204
2008
1,592
1,649
1,684
China
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
76.8
97.4
118.7
73.1
94.1
120.6
81.3
103.4
121.2
80.3
107.7
136.7
90.7
111.4
n/a
91.6
112.3
n/a
88.1
107.7
n/a
95.8
117.5
n/a
94.0
114.3
n/a
66.5
80.8
102.2
60.1
71.6
100.5
66.9
76.5
100.2
65.7
83.3
111.4
71.9
86.2
n/a
76.3
88.3
n/a
64.3
80.5
n/a
72.9
91.2
n/a
73.0
91.7
n/a
10.4
16.7
16.5
12.9
22.4
20.1
14.4
26.9
21.0
14.6
24.4
25.3
18.8
25.2
n/a
15.3
24.0
n/a
23.8
27.1
n/a
22.9
26.3
n/a
21.0
22.6
n/a
897
1,249
1,759
928
1,295
n/a
944
1,335
n/a
957
1,387
n/a
975
1,411
n/a
990
1,436
n/a
1,012
1,457
n/a
1,041
1,499
n/a
1,068
1,530
n/a
Sources: IMF, International Financial Statistics; Haver Analytics.
Monthly Report September 2008
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© The Economist Intelligence Unit Limited 2008
China
21
Annual trends charts
P ro d uc t io n to rem o v e
Annual trends charts
Real GDP growth
Consumer price inflation
(% change)
(av; %)
China
Asia (excl Japan)
World
China
14.0
8.0
12.0
7.0
10.0
6.0
8.0
5.0
6.0
4.0
4.0
3.0
2.0
2.0
0.0
2003
04
05
06
07
08
1.0
09
2003
Asia (excl Japan)
04
05
06
Source: Economist Intelligence Unit.
Source: Economist Intelligence Unit.
Budget balance
Public debt
(% of GDP)
(% of GDP)
China
12,000
Asia (excl Japan)
World
10,000
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
8,000
6,000
4,000
2,000
0
2003
04
05
06
07
China
10.0
9.0
8.0
08
09
2003
04
05
06
Source: Economist Intelligence Unit.
Leading markets, 2007
Leading suppliers, 2007
Other
52.8%
07
08
09
07
08
09
Asia (excl Japan)
Source: Economist Intelligence Unit.
(share of total)
World
(share of total)
US
19.1%
Other
57.3%
Japan
14.0%
South Korea
10.9%
Hong Kong
15.1%
Taiwan
10.6%
Japan
8.4%
South Korea
4.6%
Source: Economist Intelligence Unit.
Monthly Report September 2008
US
7.3%
Source: Economist Intelligence Unit.
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© The Economist Intelligence Unit Limited 2008
22
China
Monthly trends charts
P ro d uc t io n to rem o v e
Monthly trends charts
Price inflation
Monetary aggregates
(% change, year on year)
(% change, year on year)
Consumer prices
M1
Producer prices
M2
24.0
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
22.0
20.0
18.0
16.0
14.0
12.0
Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul
2005
06
07
08
10.0
Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr
2005
06
07
08
Source: Economist Intelligence Unit.
Source: Economist Intelligence Unit.
Retail sales
Foreign trade
(% change, year on year)
(US$ m; goods only)
24.0
Exports
Imports
Balance
140,000
22.0
120,000
20.0
100,000
18.0
16.0
80,000
14.0
60,000
12.0
40,000
10.0
20,000
8.0
0
Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul
2005
06
07
08
Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul
2005
06
07
08
Source: Economist Intelligence Unit.
Source: Economist Intelligence Unit.
Foreign-exchange reserves
Exchange rate
(US$ m)
(Rmb:US$; av; inverted scale)
1,800,000
6.8
1,600,000
7.0
7.2
1,400,000
7.4
1,200,000
7.6
1,000,000
7.8
800,000
8.0
600,000
8.2
400,000
8.4
Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr
2005
06
07
08
Source: Economist Intelligence Unit.
Monthly Report September 2008
Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr
2005
06
07
08
Source: Economist Intelligence Unit.
www.eiu.com
© The Economist Intelligence Unit Limited 2008
China
23
Country snapshot
Political structure
Official name
Form of government
People!s Republic of China
One-party rule by the Chinese Communist Party (CCP)
The executive
The state council, approved by the legislature; state council members, including the
premier, may serve no more than two consecutive five-year terms
Head of state
A president and a vice-president are approved by the NPC for a maximum of two
consecutive five-year terms
National legislature
Regional assemblies &
administrations
National elections
National government
Main political organisation
Unicameral National People!s Congress (NPC): 2,989 delegates are selected by provinces,
municipalities, autonomous regions and the armed forces. The NPC approves the
president and members of the state council, as well as the members of the standing
committee of the NPC, which meets when the NPC is not in session. All arms of the
legislature and the executive sit for five-year terms
There are 22 provinces, four municipalities directly under central government control and
five autonomous regions. These elect local people!s congresses, and are administered by
people!s governments
A new government was approved at the NPC meeting in March 2008
The politburo (political bureau) of the CCP sets policy and controls all administrative,
legal and executive appointments; the nine-member politburo standing committee is the
focus of power
The CCP, of which Hu Jintao is the general secretary
Politburo standing committee
members
Hu Jintao
Wu Bangguo
Wen Jiabao
Jia Qinglin
Li Changchun
Xi Jinping
Li Keqiang
He Guoqiang
Zhou Yongkang
Key
of government
Heads
ofmembers
selected state
ministries
& commissions
President
Vice-president
Premier
Vice-premiers
Commerce
Finance
Foreign affairs
National development & reform commission
Central bank governor
Monthly Report September 2008
Hu Jintao
Xi Jinping
Wen Jiabao
Li Keqiang
Hui Liangyu
Zhang Dejiang
Wang Qishan
Chen Deming
Xie Xuren
Yang Jiechi
Zhang Ping
Zhou Xiaochuan
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© The Economist Intelligence Unit Limited 2008