China's Growth Has Probably Peaked; Boeing, GE Are Undeterred
July 14 (Bloomberg) -- China's economy probably grew at the fastest pace in 8 1/2 years in the second quarter as consumer spending and exports surged. Government efforts to cool down the expansion aren't deterring Jeffrey Immelt, General Electric Co.'s chief executive officer.
``The government has indicated that they're going to continue to invest in energy, and we'll be one of the recipients,'' Immelt, 48, said in a conference call with investors on July 9. In power generation, ``we just don't see any slowing right now in China.''
Asia's second-largest economy probably expanded 10.5 percent in the April-to-June period from a year earlier, according to the median forecast of 10 economists in a Bloomberg News survey. Growth will slow to 8.2 percent this quarter, the survey showed. The government is aiming for annual growth of 7 percent.
Premier Wen Jiabao, 61, restricted investments by state companies in such industries as steel and automobiles last quarter to ease power shortages, transportation bottlenecks and accelerating inflation. He said in June the measures would help the government meet its target of easing growth from last year's 9.1 percent, a seven-year high.
Reaching the 7 percent target may take longer than the planned six months remaining in the year, said Nicholas Lardy, a China specialist at the Institute for International Economics, a non- partisan research group in Washington.
Could Take Years
``It could take quite a few years for China's economy to slow to where policy makers want,'' Lardy said. ``In 1993, the last time China slowed, it took six years for the economy to get to the bottom.'' Growth in 1999 was 7.1 percent, down from 13.5 percent in 1993.
The economists expect China's economy to expand 8.8 percent in 2004, the Bloomberg survey showed. The government is due to release the second-quarter report at 10 a.m. on July 16 in Beijing.
Companies such as General Electric, General Motors Corp. and Boeing Co. say China will remain one of their fastest-growing markets.
Boeing, the world's second-biggest commercial aircraft maker, says rising demand from Chinese travelers will translate into sales of its $125 million 7E7 model, a new aircraft with as many as 289 seats scheduled for first delivery in 2008.
``Asia is very strong because that's where the traffic growth is,'' Boeing Chief Executive Officer Harry Stonecipher, 68, said in an interview. ``The Chinese need lots of airplanes, and they'll buy lots of airplanes.''
25 Percent Growth
Fairfield, Connecticut-based General Electric, the world's largest company by market value, forecasts its China sales will almost double to $5 billion next year from $2.6 billion in 2003. The company has a research and development center in Shanghai and employed 1,700 salespeople in China at the end of 2003. Wen, the premier, said in May that China needed about 10 times the power capacity it currently has under construction.
Curbs on auto-industry investment aren't affecting General Motors. The world's largest automaker said last month it planned to invest more than $3 billion with its partners in China during the next three years, doubling production to 1.3 million units a year.
``We've slowed down from growing maybe 50 percent per annum to 25 percent per annum,'' General Motors CEO Rick Wagoner, 51, said at a June 23 press conference in Shanghai. ``Compared with other places where we do business, this is a pretty good issue to be dealing with.''
General Motors' U.S. sales fell 12 percent in June to 374,970 from the same month a year earlier and the company has had four straight years of losses in Europe.
Creeping Car Sales
``Foreign multinationals' enthusiasm on China has been little affected by the policy cycle,'' said Qu Hongbin, an economist at HSBC Holdings Plc in Hong Kong. ``China's huge market, cheap labor, improving infrastructure and supportive government policies all point to a continuation of shifting global manufacturing business into China.''
Wen ordered banks in April and May to restrict lending to industries he said were expanding too fast, adding to curbs introduced late last year. The central bank has raised the amount of cash banks must set aside as reserves three times since September.
There are signs those measures have had an impact.
Car sales rose in June at the slowest pace in two years, gaining 2.2 percent from a year earlier. Annual growth in fixed-asset investment, which includes spending by state companies, fell by almost half to 18 percent in May from April. The main measure of money supply, M2, had its smallest gain in 22 months in June.
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