ARC China Weekly News Summary

ARC China Weekly News Summary

Overview

Chinese Q2 GDP Exceeds Even Upward Revised Forecasts

China’s GDP growth continued its rapid rise during the second quarter of 2009, boosting confidence that China will surpass this year’s 8% growth target set by the government and head towards a V-shaped economic recovery. The National Bureau of Statistics (NSB) reported that the nation’s GDP rose to 7.9% from April to June and that the economy has grown by 7.1% this year, making China far and away the best performing major economy.

This news came on the heels of the announcement last week that foreign currency reserves hit a record $2.13 trillion at the end of June. This tremendous growth once again has analysts rushing to update projections for the next couple of years.

Indeed, some economists are now forced to consider revising upwards forecasts that were raised just a few weeks ago. Economists at Goldman Sachs, one of the first major institutions to upgrade annual projections earlier this year, are seeing clear upside risks to their current 8.3% GDP forecast for 2009. "Actual growth has been much stronger than expected. If we simply keep our previous assumptions for the next two quarters, the implied annual GDP growth will reach 8.9%," said Goldman Sachs economist Yu Song.

China only issues statistics for year-on-year GDP growth, but some economists believe the acceleration between the first and second quarters may have been as high as 15 percent. The rebound in GDP snaps a two-year run of progressively slower growth.

The Chinese economy has successfully made up for a slump in exports through increasing domestic demand, especially capital spending, spurred by the RMB 4 trillion stimulus package and record bank lending. Figures released by the NSB report that industrial output growth rose to 7% during the first half of 2009 and retail sales are up 15% from the same period last year.

Despite the recent upswing, Chinese Prime Minister Wen Jiabao told a group of economists that the government will remain cautious, stating, "An improving trend in the economy does not mean that this difficult period is over." He said that the government has pledged to focus on economic sustainability by continuing the current stimulus policies and undertaking structural reforms to encourage greater domestic consumption and less reliance on global import economies.

China is the only one of the world’s 10 biggest economies still expanding and accounted for a third of global growth last year. A report recently released by the International Monetary Fund (IMF) concluded that China will lead the way as emerging economies regain growth momentum in the remainder of this year.

Clearly China’s economy is exceeding nearly all expectations and is on track to resume double-digit growth once the rest of the world’s economies stabilize.


Adam Roseman,
Founder & CEO
ARC China

www.proactiveinvestors.co.uk