News Room - Business/Economics

Posted on 14 Apr 2009

China's economy shows signs of recovery

China's economy is showing signs of a nascent recovery, but even officials who want to boost public confidence warn a rebound faces risks from the global crisis and is not yet certain.

 

Imports of oil, iron ore and other raw materials rose in March, reflecting the impact of Beijing's multibillion-dollar stimulus spending on industry. Home and auto sales are up, suggesting consumers might be more willing to spend.

 

A rebound for China, the world's third-largest economy, could help other countries by boosting demand for their exports, though analysts say China alone cannot propel the global economy out of its worst slump since the 1930s.

 

``I think they've turned the corner,'' said economist David Cohen of Action Economics in Singapore. ``There is a sense that we are getting back on track with growth.''

 

But Cohen and others caution it is still early and China could face trouble if trade weakens more than expected or consumer spending, housing sales and other private-sector areas fail to achieve a sustained rebound.

 

``Things probably will get a little bit worse before they get better,'' said economist James McCormack of Fitch Ratings.

 

Observers hope for a clearer picture when the government releases first-quarter economic growth figures Thursday.

 

The economy showed ``better than expected positive changes in the first quarter'' due to stimulus spending and some areas ``are in a process of gradual recovery,'' Premier Wen Jiabao said over the weekend. But he warned against complacency.

 

``As the (global) crisis has not touched its bottom, we can hardly say that the Chinese economy alone has got out of the crisis,'' Wen said, according to state media.

 

Forecasts of Chinese growth this year range from 8 percent _ the official target _ to as low as 5 percent. That would be a drop from 2007's stunning 13 percent growth but still the fastest for any major country at a time when the U.S. economy, the world's largest, is mired in recession.

 

The 4 trillion yuan ($586 billion) stimulus aims to pump money into the economy mostly through higher spending on building highways and other public works. But its goal is to boost public confidence and encourage China's own thrifty consumers to spend more.

 

So far, the biggest impact has been to boost employment and revenues at state-owned construction companies and suppliers of cement and other building materials.

 

But some consumer areas are improving, possibly due to easier credit and other incentives. March auto sales rose to a monthly high of 1.1 million as buyers were lured by sales tax cuts and rebates. Home sales rose 23.1 percent in the first three months of the year from the same period of 2008, the government reported Monday.

 

Beijing wants such domestic consumption to reduce reliance on exports, which fell 17.1 percent in March from a year earlier.

 

The World Bank said last week China could start to recover this year, helping the rest of Asia to stabilize and possibly rebound. China is the top trading partner for many of its neighbors, which supply its factories with components and raw materials.

 

China is well-positioned to ride out the slump, economists say. Its state-owned banks avoided the turmoil that battered Western institutions. Government debt is low compared with other countries, giving Beijing room to borrow for its stimulus.

 

Eager to shore up public confidence and encourage consumers to spend, the government has been highlighting strong growth in bank lending as state companies borrow money for stimulus projects. Lending in March surged to a monthly high of 1.9 trillion yuan ($277 billion).

 

``We believe China's stimulus-led domestic recovery is well underway,'' said UBS economist Tao Wang in a report last week.

 

Wang said lending is growing so fast that Beijing's next move should be ``taming credit growth'' to reduce the risk of wasteful investment and bad debt that might imperil banks.

 

Also in March, iron ore imports rose 46.2 percent from the same month last year, while imports of coal were up 37.4 percent, according to customs data. Oil imports were down from a year earlier but up 33 percent compared with February.

 

But trade is still lackluster. The collapse in demand for Chinese exports wiped out at least 20 million jobs as factories closed. Communist leaders worry that more job losses could fuel unrest.

 

If global consumer demand fails to rebound until next year, ``that would suggest there are more difficulties ahead for China and probably worse economic news to come,'' said Fitch's McCormack. ``That suggests to us some of the numbers that are recovering now may have another leg down later in the year.''