HONG KONG - China's citizens, in celebratory mood as their country tops the
medals list at the Beijing Summer Olympic Games, face the worries of further
slowing of economic growth when their foreign guests pack their bags and head
home, as rising inflation and slower global spending make an impact going into
the new year.
Weaker global demand will further curtail external demand for the remainder of
2008 and 2009, and robust commodities prices will worsen terms of trade and
boost the import bill, economists said.
Growth in gross domestic product (GDP) eased to 10.4% in the first six months
from 10.6% in the first quarter and 11.9% last
year due to a slower rise in exports and investments.
China's trade surplus unexpectedly widened in July to just over US$25 billion,
but export growth should deteriorate further in the second half of this year
and 2009 to below 10% as European Union-Japan demand weakens, following weak US
demand, Chen Xingdong, chief economist of BNP Paribas in Beijing, and Isaac
Meng, senior economist at the same bank, wrote in a research note this month.
"With the export sector accounting for 11% of total jobs and 12% of fixed-asset
investment, there could be an additional impact on overall domestic demand
growth," they wrote.
Dong Xianan, macroeconomic analyst with Southwest Securities, forecasts that
GDP this year might decline to 10.1% from 11.9% recorded in 2007. Guangdong
province, which accounts for 30% of China's exports and 12% of its GDP,
reported that industrial profit for the first five months in 2008 rose only 4%,
while 25% of industrial companies incurred losses.
Companies and citizens alike have been hit by rising prices, although
government measures to ease inflation may be bearing fruit. The consumer price
index (CPI) rose 6.3% in July, compared with a 12-year high of 8.7% in
February, and averaged 7.9% in the first half this year. The CPI might fall to
5.5% on average July to September and to 4.5% in the last quarter, Xu wrote.
Even so, the producer price index, which monitors factory-gate prices, rose 10%
in July compared with a year earlier, up from a 8.8% gain in June, the highest
since at least 1996 when data became available on the website of the National
Bureau of Statistics. The impact of these increased prices would show through
on consumer price index in six months or a year, the bureau said, while further
squeezing profit margins of manufacturers struggling amid the global slowdown.
Xu Lianzhong, head of the price analysis and forecast division of the National
Development and Reform Commission's price monitoring center, said in the China
Securities Journal last week that the causes of the latest round of price
increases are complicated.
"They were triggered by both rising demand and surging costs, and influenced by
domestic and global factors," he said. "Although the major driver of the price
rise remains rapidly expanding food costs, we should take notice of rising
producer prices and the pressure of imported inflation brought by increasing
costs in the global market."
China's reliance
on foreign trade for growth makes the country more sensitive to price
changes on international markets and caused external-driven inflation, Xinhua
News Agency quoted NBS sources as saying earlier. Increase in the prices for
crude oil, grain and iron ores are the main drivers of the country's inflation,
reflecting global trends, according to the bureau. The price for iron ore has
gained more than 65% this year, after a 9.5% increase last year and 19% in
2006. That has driven up prices of rolled steel and related products.
Mainland exporters are meanwhile being squeezed by shrinking overseas
demand. Profits at 149 state-owned companies declined 10.3% to 425.6 billion yuan
(US$62 billion) in the first six months, the State-owned Assets Supervision and
Administration Commission said earlier.
Xu, from the National Development and Reform Commission, urged the government
to give tax breaks and other incentives to companies and increase subsidies to
farmers to relieve the pressure of cost increases. The government should also
cut the price of electricity and petroleum for agricultural use, he said.
The government last month indicated that macroeconomic priority in the second
half would be given to curbing inflation while maintaining stable and
relatively fast economic growth, rather than preventing overheating. Beijing
raised export tax rebates on textiles and garments to 13% from 11% on August 1,
seen as an effort to help exporters hurt by higher costs and weak demand
overseas.
The People's Bank of China, the central bank, last week increased by 5%
the annual loan quota for national commercial banks to help fund the growth
of small enterprises. The quota for regional banks was raised by 10%.
Concerns that
China's economy may face a sharp slowdown after the Olympics because of
a fall-off in Games-related spending, in line with the experience of previous Olympics
hosts, were misplaced, according to Lehman Brothers chief China economist
Mingchun Sun, given the size of the economy. Beijing, which has seen vast
infrastructure developments linked to the Games, ranging from new stadia to
underground rail networks, contributes less than 5% of the country's GDP.
In eight of the past 11 Olympic Games, real GDP growth in the host countries
slowed in the year after the Games, according to Sun, writing on August 8.
"There should be a bigger effect on a smaller economy than on a larger one,"
Sun wrote. "The impact of the 2008 Olympics on China's growth should be among
the smallest as China's economic size is one of the largest."
The economies of Japan and South Korea, both of which enjoyed double-digit
growth in the run-up to their Games, slowed more than 2% after the Tokyo
Olympics in 1964 and the Seoul Olympics in 1988.
Preparation for the Olympics
increased Beijing's annual GDP growth by 0.8 to
8.1 percentage points per year in the 2003-08
period, according to the NBS and National Bureau
of Sports.
Lehman Brothers estimated that even assuming significant spill-over from
Beijing to the rest of the nation, China's real GDP growth in 2008 will be
boosted by the Olympics by only 0.2-0.4 percentage points. This means that as
the benefits from the Games disappears in the years after 2008, real GDP growth
should moderate by only 0.2-0.4 percentage points.
Sun said the economy will cool after the Games but that will be due to an
export slowdown and domestic policy tightening - reasons unrelated to the
Olympics. Lehman expects growth in China to slow to 9.8% this year from 11.3%
last year, and to 8.8% next year.
Lu Yingchuan, deputy director of the Beijing Municipal Development and Reform
Commission, said Beijing was well positioned and would not suffer from the
post-Olympic effect. The municipal government had plans to help sustain
economic development after the Games, he said, without giving details.
Olivia Chung is a senior Asia Times Online reporter.
(Copyright 2008 Asia Times Online (Holdings) Ltd. All rights reserved. Please
contact us about
sales, syndication and
republishing.)
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
