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Prospects for the
Chinese economy
EU Trade Commissioners
Shanghai
December 16, 2008
Mary Boyd
Director, Shanghai Corporate Network
Economist Intelligence Unit
[email protected]
US: 2009 slower than 2008
8
1.5
7
6
1
5
4
0.5
3
2
0
1
0
-0.5
-1
-2
Private consumption
Residential investment
Contributions to US qoq growth; percentage points.
GDP growth is % change qoq, annualised.
Net trade
2010F
2009F
2008F
2007E
2006
2005
2004
2003
2002
2001
2000
-1
GDP (RHS)
China: reality starts to bite
•Slower exports
•Credit squeeze
•Labour issues
•Inflation worries
so…
•Easing the brakes
•Buying one’s way out of
trouble
Real GDP growth, %
13.0
12.0
11.0
10.0
9.0
8.0
7.0
6.0
5.0
2001 2002 2003 2004 2005 2006 2007 2008 2009
China: 2008/9—lower growth, high
risks
GDP growth of 9.8% in 2008 (11.9% in 2007)
7.5% in 2009
•
•
•
•
•
Spillover effect from global recession
Global credit contraction, China’s credit
quota
Inflation = 6.4% yearly forecast
Fiscal burden
Natural disasters
Cooling measures: stable macroeconomic deceleration
was Beijing’s goal - but it is now going for growth
reduce investment in
overheated sectors
 stimulate domestic
consumption levels
 use fiscal transfers, fixed
asset investments to redress
balance between rich and
poor areas (policy)
…while managing economic
transition and maintaining stability
Olympic year
• Industrial upgrade
• Global downgrade

Exports sputter, and there’s worse to come
China’s H1 exports by destination
2008
2009
EU
1.1
-.0.3
US
1.4
-0.4
Japan
0.3
-0.2
Real GDP growth
20.6%
17.5%
8.3%
8.3%
EU
Japan
13.6%
US
ASEAN
Hong Kong
Other
Major headaches
•Collapsing stock
market
Shanghai Stock Exchange Composite index
-M
20
ar
07
-M
ay
20
07
-J
20
ul
07
-S
ep
20
07
-N
ov
20
08
-J
an
20
08
-M
20
ar
08
-M
ay
20
08
-J
ul
•Will consumer
spending hold up?
20
07
•Knock-on effect of
world financial turmoil
5000
4500
4000
3500
3000
2500
2000
1500
China ¥ = US $
• slower US growth will have
selective impact on China
• rate of RMB appreciation has
picked up, to 9.7% in 2008.
• ¥6.42:US$1 by end-2010
• but still no one-off move
Power shortages
•Masses of new generating capacity
•Pricing policies a major factor in
shortages
•2002 = 824 kg. oil per head
•2008 = 1,405 kg. oil per head
•2002 = 1,271 kwh per head
•2008 = 2,471 kwh per head
Wage pressures
•Pro-union push by ACFTU
•Embryonic “collective
bargaining”
•More litigious work force
•Demographic pressures
•Importing of cheaper labour
EHS outlook: old problems, new protocols
•New inspection
protocols, confidencebuilding measures
•Major trading partners
enlisted for new
(harmonized)
standards
The agribusiness approach
•Land tenure issues,
rural livelihoods
•Food safety
concerns
•Food security
concerns
Real estate market factors
•Fallout in local property
markets, transactions and
prices are down
•Consolidation in property
sector
•Local municipalities try to
keep their markets afloat
•Relief for mortgage holders?
A housing bubble?
Floor Space of Buildings under Construction and Completed by
Region 2007
300
Under Construction
Completed
250
150
100
50
un
an
H
nh
ui
A
jia
n
Fu
Li
ao
ni
ng
Si
ch
ua
n
ej
ia
ng
Zh
on
g
su
Ji
an
g
Sh
an
d
G
ua
ng
do
ng
en
an
0
H
Mlilion sq.m
200
Labour unrest
• Taxi strikes
• Skills shortages
• Paying the price of
industrial upgrades
• Moving back home
No more fast lane
Government to the rescue
•Export rebate tax adjustments
•Credit relaxed for SMEs
•Stimulus package
•…But watch the 3 Rs:
Regulations, Raw materials,
Renminbi
The stimulus package?
The rise of the welfare state should
underpin greater consumption
The 17th CCP Congress:
“Harmonious society”
policies take effect
• Education
• Health
• Poverty stipends
• Subsidized housing
• Rapid growth of 2nd and 3rd
tier cities and beyond
• But saving culture unlikely
to be lost overnight
Global reliance on Chinese consumers
•Asset bubble had fed
conspicuous consumption
•Will buying habits persist in
hard times?
Empty lots
On-line consumption
Consumer resilience?
Top 10 Retail Cities in China 2007
* Based on household registration
Wuhan*
Ningbo*
Nanjing
Hangzhou*
Suzhou*
Shanghai
Shenzhen
Beijing
Wuxi*
Guangzhou
0
5,000
10,000
15,000
Retail per head (RMB)
20,000
25,000
Asset shifting
Rural markets on the move
•“万村千乡市场工程”
rural retail policy push
•Revolution in rural
finance
•Hypermarkets,
supermarkets, mini
markets, convenience
stores, gas stations
expand the rural
footprint
Thank you!
谢谢
Mary Boyd
Director, Shanghai Corporate Network
Economist Intelligence Unit
[email protected]