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Published by: Business Monitor International
Published: Oct. 30, 2009 - 62 Pages
Table of Contents
- Executive Summary
- Rebalancing: A Long-Term Process
- Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- Six Structural Challenges To Watch
- As China celebrates the 60th anniversary of the Communist revolution, we identify six key structural challenges that
- the country faces over the coming decades. These are not insurmountable, but could slow the pace of China’s ascent.
- Table: China Political Overview
- Foreign Policy
- Al-Qaeda Threats: Key Implications
- A senior al-Qaeda leader’s threats against China over its treatment of Muslim Uighurs are symbolically significant.
- Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Recovery Remains On Course
- Economic data for August have suggested that the rebound in China continues unabated as Beijing persists with its
- expansionary fiscal and monetary policies.
- table: ECONOMIC AC TIVITY
- Monetary Policy
- Don’t Be Fooled By The Upcoming CPI Surge
- Despite the tremendous surge in money supply growth in recent months, the Chinese economy continues to benefit from
- very benign CPI readings.
- table: MONETARY POLICY
- Exchange Rate Policy
- Pressure To Build On Yuan
- We expect to see upside pressure build on the CNY 1-year NDF outright over the coming months as hot money continues to
- pile into China.
- table: EXCHANGE RATE
- Balance of Payments I
- Trade Account: Rebalancing Begins
- China’s trade surplus came in at US$12.9bn in September after a surge in import and export growth, and we believe that
- the full-year trade surplus will hit US$180.5bn (3.8% of GDP) this year, down from US$297.3bn in 2008.
- Balance of Payments II
- Trade War Risk Heightened
- The decision by the US government to hike tariffs on Chinese tyre imports has prompted Chinese officials to launch an
- investigation into automotive and poultry imports from the US.
- Table: CURRENT ACC OUNT
- Chapter 3: 10-Year Forecast
- The Chinese Economy To 2019
- Three Scenarios For Growth
- While the monetary and fiscal response to the collapse in external demand has been successful in boosting growth
- momentum, the Chinese authorities have done little to address the imbalances of excessive investment and a
- reliance on exports.
- table: CHINA Long-Term Macroe conomic Forecasts
- Chapter 4: Special Report
- The World’s Fiscal Conundrum
- Bleeding Red Ink Across The Globe
- Table: WORLD GOVERNMENT EXPENDITURE INDICA TORS
- Table: WORLD GOVERNMENT REVENUE INDICA TORS
- Table: WORLD FISCA L BALANCE INDICA TORS
- Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- TABLE: BMI BUSINESS AND OPERATIONAL RISK RATINGS
- Institutions
- TABLE: BMI LEGAL FRAMEWORK RATINGS
- Infrastructure
- TABLE: LABOUR FORCE QUALITY
- Market Orientation
- table: ASIA, ANNUAL FDI INFLOWS
- table: BMI TRADE RATINGS
- Table: CHINA TOP EXPORT DESTINATIONS
- Operational Risk
- Chapter 6: Key Sectors
- Tourism
- Table: Arrivals Data, 2005-2013 (‘000)
- Retail
- Table: Key Retail Indicators, 2006-2013
- Chapter 7: BMI Global Assumptions
- Global Assumptions
- TABLE: GLOBAL ASSUMPTIONS
- TABLE: GLOBAL & REGIONAL REAL GDP GROWTH
AbstractChina’s economy appears to firing on all cylinders once again, as the government’s aggressivemonetary and fiscal policies have helped boost domestic demand at a time of weak export demand.
However, with global demand likely to remain weak over the coming quarters, we cautionthat rampant investment spending may result in a severe overcapacity problem, which could hurtChina’s medium-term growth potential. Having celebrated the 60th anniversary of the Communistrevolution, we identify six key structural challenges that the country faces over the coming decades.
These are not insurmountable, but could slow the pace of China’s ascent.
The 60th anniversary of the foundation of the People’s Republic of China on October 1 2009provides an opportune time to reflect on where China is going. There is a widespread belief thatChina is on course for global domination. While less prominent, but certainly meriting attention,is a small group who thinks that China is heading for a catastrophic collapse. At this moment intime, we feel that the two scenarios are not mutually exclusive. China could indeed experience aneconomic meltdown within the next decade, but emerge stronger and continue to grow rapidly forsome time thereafter. Indeed, meltdowns in the US in 1929 and in Asia in 1997-1998 did not halttheir long-term economic ascent.
The Chinese authorities have acted swiftly and aggressively to provide some domestic demandimpetus to the economy in the face of a huge external demand shock. These policies have certainlyhelped to alleviate some short-term pain. The rise in loan growth and fiscal spending have seeneconomic activity recover sharply in recent quarters. Real GDP growth came in at 7.9% y-o-yin Q209, up from 6.1% y-o-y in Q109. However, by channelling resources excessively towardsinvestment projects, and not sufficiently boosting consumption, we caution that these efforts havedone little to address China’s underlying economic imbalances. In fact, the measures may makethe transition from export-led to consumer-led growth even more difficult.
The decision by the US government to hike tariffs on Chinese tyre imports, which promptedChinese officials to launch an investigation into automotive and poultry imports from the US, hasraised concerns of a trade war developing. There is a significant risk that this could lead to a rise inprotectionist measures from both countries, with potentially devastating consequences for China’sexports figures, which continue to be the weak link in the recovery story. On a positive note, theChinese authorities continue to strengthen ties with Russia, with companies from the two countriesrecently signing agreements to strengthen energy, political and military ties. Meanwhile, ChineseCommerce Minister Chen Deming said the country is working ahead to open up the services sectorto foreign investment, with the aim that foreign firms will eventually be allowed to list on Chinesestock exchanges.
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