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Beyond the rosy China stats:
Problems
By Macabe
Keliher
HONG KONG - China's official economic
growth figures are out, and while they do tell of a
strong economy fueling much of the regional and even
world-wide growth, they also point to tremendous
production capacity, which, some economists say, the
system cannot support.
The Chinese economy grew
9.1 percent last year, its fastest in seven years, to
11.67 trillion yuan (US$1.4 trillion), according to the
National Bureau of Statistics. After a strong first
quarter of 9.9 percent growth, the SARS crisis slowed
the second quarter down to 6.7 percent. But the economy
quickly recovered as foreign direct investment continued
to flood in, driving third and fourth quarter growth to
9.6 percent and 9.9 percent, respectively. It was the
strongest annual growth rate since 1997.
Such
growth accounted for 16 percent of the world's 2.5
percent economic growth in 2003, according to a United
Nations report last week. China, it said, "will benefit
the world economy as a whole".
Regionally,
Beijing likes to say it has pulled its neighbors out of
the financial crisis to new prosperous beginnings. China
currently runs a trade deficit of $43.4 billion with
Asia, and a combined deficit of almost $60 billion with
Taiwan, Japan and South Korea. "China's growth promoted
the ASEAN [Association for Southeast Asian Nations]
economic recovery," says a Chinese Foreign Ministry
official who asked not to be identified. "A healthy
percentage of ASEAN growth is based on China."
China is buying up large amount of resources
from around the region to fuel its growth. Products like
liquid natural gas from Indonesia and Australia, rubber
and palm oil and air-conditioners from Malaysia and
steel and tin from other Southeast Asian countries.
Beijing is pushing for trade between China and ASEAN
countries to double in two years to $100 billion.
Chi Lo, a Hong Kong-based China economist and
author of When Asia Meets China in the New
Millennium, says that this trend has been building
over the past 10 years and is only expected to
intensify. "Much as it already is, China will be a
cushion for the region when Japan, the US and Europe no
longer have the demand," Chi says.
Big
production, little market demand
The question,
however, is: will China continue to have the demand?
Particularly telling among the figures released this
week is that the industrial sector accounted for 6.5
percent of the growth rate - a total of 71.6 percent of
China's gross domestic product, GDP.
This does
not necessarily mean that Chinese factories are
producing over 8 trillion yuan worth of goods, but it
does mean that whatever part of that 8 trillion yuan
that is not consumer products is being spent to build
capacity in order to produce consumer products. It still
comes out to a lot of production capacity for "a lot of
things the market doesn't want", says economist Chi.
State-owned factories account for a good portion
of products that the government buys and puts in
warehouses, products like bicycles and steel tools.
Grain is also bought en masse by the government in order
to keep farmers solvent. This often leads to
overproduction because producers know that markets are
secure. The private sector is guilty as well. Automobile
production by private companies is probably the sector
best known to be producing at rates way beyond what the
market wants. Companies in China have the capacity to
make 2.8 million cars. The market only takes about 1.8
million of them.
Although it is hard to know how
much over-capacity exists in other sectors, not to
mention the entire country, Hong Kong economist Chi Lo
estimates that not counting excess inventory would knock
1-1.5 percent off GDP growth. "China is not growing as
fast as we think if we do not count inventory as a part
of the GDP," he says. Other countries do count their
excess inventory as GDP, but other countries do not have
the excess capacity problem that China does.
Nor
do other countries usually continue to build more
capacity while sitting on high inventories. China
consumed 30 percent of the world's coal production last
year, 36 percent of the world's steel and 55 percent of
the world's cement, according to the National Bureau of
Statistics.
Bureau commissioner Li Deshui
acknowledged that prices for steel and cement were
rising. After deflating for years, since 1996,
economists forecast inflation this year. In fact, some
economists and foreign investment banks forecast that
inflation will rise as high as 5 percent. Consumer
prices were 3.2 percent higher in December than a year
earlier, according to figures released Tuesday by the
statistics bureau. By comparison, the year-over-year
price increases were 3 percent in November, 1.8 percent
in October and 1.1 percent in September.
Overheating concerns
"From all these
aspects, it is reasonable that people worry about the
occurrence of overheating," Li has been quoted as
saying. "However, everyone can see that the central
government has already implemented a series of measures"
[to control the overheating problem].
The
statistics bureau forecasts 7 percent growth this year,
a figure on which economists largely agree - to a half a
percent. Li explained the slight slowdown: "Demand will
be strong but export growth is likely to slow due to
global trade protectionism." This is probably true, but
add the will of the government to put the brakes on the
overheating economy, to which Li alluded. The central
government has tightened lending, and according to
sources in the banking industry completely cut off loans
to property developers who have a high rate of bad,
uncollectible loans.
Foreign direct investment,
FDI, may be waking up the country's overcapacity
realities. After expanding 12.5 percent in 2002, and
double digits in years previous, total FDI in 2003 grew
only 1.44 percent to $53.5 billion, according to the
National Bureau of Statistics. Margins in the
manufacturing industry have been squeezed due to
competition and the amount of product hitting the
market. The International Finance Corporation, for
instance, the World Bank's investment arm, has stopped
financing or investing in the manufacturing industry.
Says one source at the IFC: "It's already
over-invested."
(Copyright 2004 Asia Times
Online Co, Ltd. All rights reserved. Please contact content@atimes.com for
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