The World Bank announced that China’s economy would grow less than expected this year — bad news for the rest of world, including the United States.
The World Bank said China’s gross domestic product would grow by only 6.5 percent, down from its previous forecast of 7.5 percent made just last November.
China, now the world’s third-largest economy, behind the US and Japan, has been experiencing phenomenal growth, with its economy expanding at a rate of 10 percent or more every year since 2002. Over the last several years, China has helped fuel growth around the world by spreading its money around. Now, there are worries about the fallout from the downturn.
For more, watch the Worldfocus interview: China’s troubled economy ripples across the globe.
Reading tea leaves for signs of China’s recovery
What to make of it when, within a few hours last week, the statistical bureau depressed us with a 26% decline in exports for February and then elated us with a 27% increase in urban fixed asset investment? These two figures capture nicely the struggle that is going on within the Chinese economy.
We launched our China Quarterly report today with our take on how to reconcile the conflicting data. Clearly, the global economy is in very poor shape. Global GDP declined at an annualized rate of 5% in the fourth quarter of 2008, and global industrial production declined at a 20% rate. These are shocking numbers that those of us born after the 1930s have never seen. Naturally this has had a large effect on China, which is an open, export-oriented economy. China’s seasonally adjusted monthly exports peaked at around $120 billion last fall, and then fell off a cliff – dropping by about one-third (see chart).
The other obvious area of weakness is the real estate sector. Even before the global crisis began to affect China, the problems of excessive price rises and over-building were apparent. In the first two months of 2009, real estate investment showed zero growth over the year before. So, two important sectors of the economy – real estate construction and exports have either zero or negative growth.
But it is not all bad news. The government’s 4 trillion Yuan stimulus package is for real and is already having visible effect. Infrastructure investment is rising rapidly: railway investment, for example, is up more than 200% from last year. This has backward linkage to industries such as cement (real production up 17% in January-February from the year before). Real retail sales have held up quite well (up 15% in January-February from the year before) indicating that many households are spending the large increases in income they have seen in recent years.
We feel that these data tell a complex but coherent story. Export-oriented manufacturing and real estate construction are in decline, while at the same time there is rapid growth in infrastructure investment, manufacturing industries tied to that, and household consumption of both manufacturing items and services.
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