Economist Intelligence Unit Briefing
Uncertainty in the year ahead
Jul 28th 2009
From the Economist Intelligence Unit ViewsWire
China‘s economy should grow by 8% this year and next, but significant risks remain
The Economist Intelligence Unit has revised its economic forecasts for China in 2009-10, and now believes that the country will achieve 8% GDP growth in both years. With real GDP growth having reached 7.9% year on year in the second quarter of 2009, China already appears on course to achieve the government’s aim of 8% average growth this year. However, growth in 2010 remains subject to significant upside and downside risks. The outlook is obscured by the dominant role that government policy is set to play next year, and by the high degree of uncertainty with regard to the outlook for the global economy.
经济学人智库（The Economist Intelligence Unit）调整了中国2009及2010年的经济增长预期，现在相信中国这两年GDP增长都会达到8％。随着2009年二季度真实GDP增长率达到7.9％，中国看似已经在通往年度目标8％的既定轨道上了。然而，2010年的增长率依然取决于重大的上行和下行风险。中国经济前景并不明朗，因为两个重要因素——中国政府明年将要采取的政策和全球经济前景都不确定。
Our forecast for next year reflects an assumption that the government will tighten credit and fiscal policy moderately. Such an approach would be likely to have negative side-effects. Asset-price inflation will be stimulated by a credit and fiscal policy stance that will be kept loose to offset the effects of the weak global economy on the export sector. Several local governments in China will face growing fiscal strains that may require the central government to bail them out. China’s fiscal deficit in 2009-10 will in any case be larger than at any point since the start of the reform era in 1979. Coupled with this, the banking sector will face a tough challenge. If economic growth is not to slow sharply in 2010, credit will have to continue to grow strongly. Yet coming after the extraordinary rise in lending seen in 2009, a further massive expansion of credit would increase the threat of loans turning bad and of a future banking-sector crisis. Such a crisis would require another recapitalisation effort by the central government, putting additional strain on China’s public finances.
Should the costs of the government’s policies become too high (for example if consumer price inflation were to accelerate), or should China’s tendency towards fiscal conservatism reassert itself (perhaps as the central government sought to enforce its authority over provincial leaders), our forecast for 2010 could prove optimistic. A sharper tightening of policy would see infrastructure spending slow and could bring to an early end the recovery in housing investment. The loss of business confidence and the adverse effects of such measures on the job market would undermine private-sector investment and consumer confidence, and GDP growth in the year would be likely to fall below the forecast level of 8%. However, for this very reason the government will be reluctant to adopt such an approach.
It is also possible that GDP growth in 2010 could be higher than we forecast. The strength of housing and car sales in the second quarter of 2009 suggests consumer confidence has recovered more quickly than expected. In addition, with domestic demand in 2009 proving much stronger than most analysts had forecast, especially in key industries such as automotive manufacturing, many companies are already operating at full capacity and are planning to increase investment. This is creating a positive cycle of employment generation and demand growth, which if sustained in 2010 could offset a slight tightening of policy by the government. It is also possible that the external picture may prove less gloomy than we currently expect. This would provide a substantial boost to China’s economy as the export sector revived. However, if the upside risk scenario for economic growth becomes a reality, businesses in China are likely to see considerable cost pressures re-emerge, with land and wage costs accelerating quickly.