Wednesday, April 16, 2008

Chinese Growth Remains Strong

As expected, China's economic growth rate slowed during the first quarter of 2008 to "just" 10.6%, down from 11.2% in Q4 2007. These are year over year growth rates. The change from the previous quarter was probably less than 10% at an annual rate.

Even so, this report is very bullish for the Chinese economy. The reason is that this slowdown was the result of a temporary factor, namely the harsh and cold winter weather with large quantities of snow, which caused massive supply disruptions. This however won't be a factor during this quarter so growth will bounce back.

What is particularly bullish is the fact that growth in domestic demand seems to be accelerating, which will enable China to keep strong growth even as higher oil prices and the U.S. recession cause its trade surplus to fall. Interestingly, the trade surplus fell even in dollar terms compared to a year earlier. In yuan terms the decline was even bigger, and relative to GDP the decline was much bigger. Although some of this decline could be attributed to the aforementioned supply disruptions, it should be clear that domestic demand is now growing faster than production.

This not only means that China is decoupling, it also means that the Chinese is to an increasing extent themselves enjoying the fruits of their hard labor, instead of sacrificing themselves for American consumers.


Blogger flute said...

I also found this morning's China statistics very interesting. Especially the large increase in retail points to some kind of decoupling in the form of higher domestic demand for consumer goods.
However, the high CPI and PPI figures are worrying. This is not good for the Chinese economy in the long run.
I also question how sustainable the growth is. GDP about +10%, investments about +26%. Any numbers that high make me see a potential bubble and a future correction to below historical averages (because that's what averages are all about). I would feel more confident about their future if they had a lower but stable growth rate. Many of these investments might also prove to be malinvestments after a year or two.

11:21 PM  
Blogger stefankarlsson said...

I don't share your concerns. While there are certainly a lot of malinvestments that is not that big of a problem because the overall investment rate is so high that there are more than enough sound investments to keep the economy going.

And the spike in the CPI and PPI is largely a result of the temporary supply disruptions I mentioned in the post as well as other temporary supply disruptions, such as the blue ear pig disease which have temporarily caused a spike in the price of pork. Once these supply disruptions go away, the CPI and PPI will fall back.

1:53 PM  

Post a Comment

<< Home