China is Looking Up

The Singapore Business Times reported today (10 July) that the State Information Centre (SIC), a leading Chinese think-tank has projected that China will expand about 8 per cent this year. This is the latest in a series of broadly bullish reports reflecting the growing momentum of the world’s third-largest economy.

According to them, the Chinese economy has successfully touched bottom and has started to rebound, though a recovery trend is not assured. However, it pointed out that further stimulus on top of the government’s 4 trillion yuan (RM2 trillion) spending plan will not be required to help lower borrowing costs. There is also no likelihood that there will be further interest cuts in 2009.

The International Monetary Fund on Wednesday became the latest organisation to take a rosier view of China’s prospects, raising its forecasts for GDP growth this year and next by one percentage point to 7.5 per cent and 8.5 per cent, respectively.

The World Bank, the Organisation for Economic Co-operation and Development and a clutch of banks have recently upgraded their forecasts as evidence mounts that massive fiscal and monetary stimulus is likely to lead to full-year growth close to the government’s 8 per cent target.

Indeed, the official Xinhua news agency cited unidentified statistics officials as saying gross domestic product (GDP) growth was already “close to 8 per cent” in the second quarter. Xinhua said the data would clearly show that the economy was no longer declining but was now moving up.

While debate swirls in the United States about the merits of a second round of fiscal pump-priming, market talk in China has abruptly switched to whether the central bank will soon need to abandon the easy monetary stance it adopted late last year.

Banks extended 1.53 trillion yuan in new loans in June, the People’s Bank of China (PBOC) said on Wednesday, taking new credit for the first half of the year to 7.37 trillion yuan, or almost 25 per cent of last year’s GDP.

To nudge up money market rates last week, and on Wednesday PBOC said it would resume sales of 12-month bills, suspended since mid-November, to drain cash from the banking system.

If China can stemmed property speculation, we can expect the more orderly and managed state economy to move upwards.

Hopefully, China’s strong growth will provide the impetus to pull out the world from deep recessionary pressures for a quicker V-shaped recovery.