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China Business Forecast Report Q2 2010

Published by: Business Monitor International

Published: Feb. 5, 2010 - 74 Pages


Table of Contents


Executive Summary
China - Back To Potential, But Slowdown Awaits
Chapter 1: Political Outlook
Domestic Politics
Social Unrest Still A Risk
Although China avoided major unrest in 2009 as the economy slowed, it remains vulnerable to public disturbances,
especially as we expect to see a double-dip slowdown in H210 and 2011.
Table: China Politica l Overview
Long-Term Political Outlook
Major Challenges Over The Coming Decades
China faces myriad economic, social and environmental challenges over the coming decades that could seriously test
the Communist Party of China’s ability to govern.
Chapter 2: Economic Outlook
Economic Activity
2010 Will Test The Investment Model
Our 8.4% 2009 real GDP estimate for China faces upside revision owing to recent impressive macroeconomic data, and
investment spending could exceed our expectations.
tab le: ECONOMIC ACTIVITY
Exchange Rate Policy
CNY: Minor Adjustment, Not Major Revaluation
Policy tightening is beginning to take centre stage in China as inflation concerns mount and macroeconomic data show
a solid recovery.
tab le: EXCHANGE RATE
Monetary Policy
Exit The Dragon
China’s December trade data suggest that the economic recovery is in full swing.
tab le: MONETARY POLICY
Balance Of Payments
Cast Iron Trade Recovery?
Notwithstanding a number of supportive long-term factors, we believe that the Chinese property market has entered
bubble territory and poses a significant risk to the economy.
tab le: CURRENT ACCOUNT
Investment Outlook
Chapter 3: 10-Year Forecast
The Chinese Economy To 2019
Liberalisation To Underpin Growth
We point to continued economic and financial liberalisation, investment in education and favourable demographics as
major positives underpinning China’s structural climb.
Table: Long -Term Macroeconomic Forecasts
Chapter 4: Special Report
Political Risk In The Next Decade
What To Expect In 2010-2019
Table: Countries Facing Major Leadership Succession In 2010-2019
Table: Countries At Risk Of Major Politica l Upheaval
Table: Countries At Risk Of Interstate Conflict Or Heightened Bilatera l Tension
Table: Countries Facing Secessionist Or Autonomy Movements , Insurgencies , Or Civil Wars
Table: Pivota l States
Chapter 5: Business Environment
Business Environment Outlook
TABLE: BMI BUSINESS AND OPERATIONAL RISK RATINGS
Institutions
TABLE: BMI LEGAL FRAMEWORK RATINGS
Infrastructure
TABLE: LABOUR FORCE QUALITY
Market Orientation
tab le: ASIA, ANNUAL FDI INFLOWS
tab le: BMI TRADE RATINGS
Table: CHINA TOP EXPORT DESTINATIONS
Operational Risk
Chapter 6: Business Environment
Food And Drink
Table: China MGR Retai l Indicators — Historica l Data & Forecasts
Consumer Electronics
Table: Consumer Electronics Overview
Chapter 7: BMI Global Assumptions
Global Outlook
2010 Looking Rosier
TABLE: GLOBAL AND REGIONAL REAL GDP GROWTH
TABLE: developed market exchange rates
Table: Emerging Market Exchange Rates
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES
TABLE: EMERGING MARKETS

Abstract

After bouncing back strongly from the impact of the global financial crisis, the Chinese economy isfaced with the prospect of tighter monetary conditions in 2010, which will put the growth recovery tothe test. We expect a slowdown in the economy in H210 as the government normalises monetarypolicy amid rising consumer price inflation. China remains vulnerable to public unrest in 2010 andbeyond, despite the relative absence of major disturbances in 2009 as the economy slowed.

In 2009, one of our key concerns was that the slowing economy would lead to substantial joblosses, thus triggering major unrest. Although around 23mn migrant workers had lost their jobsby early 2009, the government’s fiscal stimulus plans have had a major impact, with the numberof unemployed migrant workers falling to 4.2mn by the end of June. Another growing challengefor the Chinese government is organised crime. Gangsterism is becoming increasingly rife andcriminal groups are said to be spreading their influence into municipal and provincial administrations,effectively creating local mafia fiefs. Where local authorities are perceived as not havingdone enough to crack down on this, citizens have staged protests outside administrative offices,raising concerns about loss of confidence in public institutions.

Our core view of a slowdown in the Chinese economy in H210 remains in place, although thereare increasing risks that policy tightening could cause a sooner-than-expected downturn. Sincethe onset of the recovery, we have emphasised (to a large extent) that the massive expansionon the money supply meant growth would be borrowed from the future, and we maintain that themedium-term growth outlook will be characterised by dealing with the impact of 2009’s malinvestmentsuch as overcapacity and banking system instability. As we have explained previously, whilesharp monetary tightening in the near term (not our core view) would likely induce a slowdownbefore H210, this would help to limit the damage down the line from further excessive credit creation.Although we continue to see China’s business environment on a healthy long-term path and thecountry will continue to attract overseas investors, recent events highlight the still-high level of riskassociated with operating within the Party of China’s regime. Google’s recent threat to withdrawits services from China over concerns about over-zealous internet censorship laws is a case inpoint. The party’s commitment to prioritising political control over a friendlier business environmentwill continue to hold back China’s score in our business environment ratings.

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