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China’s Economy Stable But Strong Growth Unlikely Soon

The World Bank released the China Quarterly Update, June 2009 recently. This report offers an in-depth analysis of the current state of the Chinese economy. Some highlights from this report are presented below.

• China’s economy declined in the first part 0f 2009 but thanks to the infrastructure-focused “RMB 4 Trillion” stimulus plan announced by the government, the economy is growing respectably
• The stimulus plan has increased lending by banks and government-influenced investment has soared

• The economy is  stable since domestic consumption has held up well
• Export has decreased considerably due to fall in overseas demand for Chinese goods

Source:  China Quarterly Update, June 2009, The World Bank

• Import volumes has rebounded in second quarter this year due to rise in raw material imports
• The real estate market is unlikely to have strong growth as before
• World Banks projects a GDP growth of 7.2% in 2009 and 7.7% in 2010
• Additional stimulus measures are not necessary
• Chinese economy needs growth in domestic demand
• Foreign exchange reserves accumulation has slowed in the past 9 months. In 2009Q1 it grew $8B compared to $154B in 2008Q1
• Despite rhetoric by senior Chinese officials, China continues to be a major buyer of US treasuries
• As the Shanghai Composite Index has risen over 50%  since the end of 2008, trading volume has increased significantly
• The high pace of bank lending for projects is expected to slow down
• “It may take time before the RMB becomes a major reserve currency”

For the full report click  China Quarterly Update, June 2009

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