NOT-SO-GREAT EXPECTATIONS: Slowdown of Japan, U.S. economies to negatively impact China, report says
(18 May 2001) The People’s Bank of China (PBOC), the country’s central bank, recently published the "First-Quarter Monetary Policy Implementation Report for 2001." According to the report, China’s economy for 2001 will maintain high growth with low inflation.
The report said the economic slowdown in the United States and Japan would negatively impact China through four channels, including exports, capital flow, currency exchange rates and market anticipation, according to a May 16 report by Qihuo Ribao (Futures Daily).
Exports
The United States remains one of China’s important export destinations, accounting for 21 percent of China’s exports. If re-exports from Hong Kong are included, the U.S. market will make up roughly 40 percent of China’s exports. The Japanese market accounts for 16.7 percent of China’s exports.
The two markets combined receive more than half of China’s exports. The growth of China’s first-quarter exports to the United States plummeted 46 percent from the same period in 2000, while growth in exports to Japan declined 7.6 percent, the story said.
Capital flow
Dramatic share price declines in the U.S. stock market are expected to hurt the overseas investment ability of U.S. companies. However, Asian nations account for 60 percent of China’s foreign funds, including approximately 15 percent contributed by Japan alone, while the United States only accounts for about 7 percent.
The U.S. overseas investment decline, therefore, is not expected to have too much direct impact on China’s economy. The yuan remains stable, which makes China one of the most attractive investment destinations in the world, the report noted. The investment downturn in the United States and Japan is expected to be beneficial for China in attracting foreign investment.
Currency exchange rate
The depreciation of the Japanese yen against the U.S. dollar is expected to help boost Japanese exports. China’s exports may be hurt indirectly because the increase in Japanese exports would increase competition for some Chinese exporters.
Meanwhile, the sustained depreciation of Japan’s yen will impose pressure on the stability of the Chinese yuan. China’s competitiveness in exports has been hurt significantly since the dramatic depreciation in some Asian currencies that occurred in 2000, the report said.
Market anticipation
There is a consensus among investors that the U.S. economy will continue its slowdown, at least in the short term, and, in general, the overall global market will continue its downward trend. However, there have been no signs indicating a serious economic deterioration in the near future. Investors and consumers are still expected to be more cautious, the story said.
The gloomy global market anticipation will not have a significant impact on China in the short term. In the report, China’s economic growth for 2001 is predicted at around 7.5 percent, with inflation remaining low, the article said.
MOFTEC report: Currency devaluation?
On the heels of the PBOC report, the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) released its quarterly outlook today, which predicts that imports will grow faster than exports this year, resulting in a narrower trade surplus. China's trade surplus has fallen to US$5.4 billion in the first four months of this year from US$7.3 billion in the same period last year.
According to the Dow Jones Newswires, the report implies that China is considering a devaluation of the yuan in the wake of the weakening Japanese yen, which poses a threat to China’s price competitiveness.
However, the MOFTEC report did not specifically mention a currency devaluation, Dow Jones noted, but said, "China needs to take measures to improve the competitiveness of its exports."
Anita Narayan from ChinaOnline News contributed to this story.
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