Gauging the echoes of the China boom
By Daniel Bogler
Published: December 8 2003 4:00 | Last Updated: December 8 2003 4:00
It is a measure of the conundrum that is China that investors, economists and even policy-makers in Beijing are divided about whether the economy is slowing down or speeding up.
After expected gross domestic product growth of 8.5 per cent in 2003, the government has set a conservative target of just 7 per cent for next year. Bearish forecasters such as Morgan Stanley forecast a touch more. The bulls, led by Goldman Sachs, expect an acceleration to 9.5 per cent. And looking at construction activity or electricity demand suggests that these "official" measures of GDP are understating China's actual expansion by three to four percentage points.
On one level, this seems a rather esoteric debate. Whichever number proves correct, China will surely remain the world's fastest-growing major economy. In truth, it matters hugely - and not just to China.
With imports growing at 40 per cent a year, the world's workshop has become the price-setter for oil, metals, minerals and shipping rates. In Asia, its thirst for raw materials and components has helped restart growth, not least in Japan and South Korea.
Meanwhile, Chinese exports are keeping US consumers spending and its foreign exchange reserves are plugging the US current account deficit. A deviation in Chinese growth of a couple of per cent could have a big impact on global commodity, currency and stock prices - either up or down.
So which is it? For much of 2003, Beijing's prime concern has been that growth was too frenetic, as shown by incipient bubbles in certain urban property markets, as well as the motor vehicle, steel and aluminium industries. Accordingly, the central bank was given permission in September to rein in credit growth in order to slow things down.
But this hawkish consensus, if it ever really existed, appears to have broken down. In a recent interview with the FT, Wu Xiaoling, central bank vice-governor denied the economy was overheating. This suggests that bank lending to the non-financial sector, which rose by more than 50 per cent in the first nine months of 2003, will continue to grow rapidly.
This attempt at policy-directed moderation may, however, be giving way to one caused by capacity constraints. As winter approaches, power shortages are causing widespread factory shutdowns that already appear to be delaying foreign investment and could dampen growth at the margin. Some cities have even switched off their traffic lights.
In the end, this might be no bad thing: despite the short-term adverse impact on global demand, a soft slowdown now is preferable to a hard landing later. Investors should watch those traffic lights.
India ignites
If China is slowing, perhaps India is at last ready to take its place? Indian finance minister Jaswant Singh told the FT last week India "stands on the edge of explosive economic growth".
And no, it is not down to all those call centres manned by software specialists - however impeccable their English accents are. Mr Singh is pinning his hopes on a second "green revolution" in agriculture, still 25 per cent of GDP, and the prowess of India's manufacturing centre.
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