There are growing signs the Chinese economy has begun to recover in
response to a government stimulus package largely funded by the state-run
banking system.
Some important voices, however, have said it is too early to claim
victory in Beijing’s struggle against falling economic growth.
The main drivers of Chinese growth in the past decade have been exports,
foreign direct investment and the real-estate market, particularly since 2003
when the economy went into overdrive. March exports fell 17.1% from a year
earlier, a huge drop but an improvement on February when exports fell 25.7%.
Within China, sales of passenger vehicles in March rose 10 per cent from
a year earlier, and 27 per cent from February, to 772,400, according to the
China Association of Automobile Manufacturers, a sign that consumer demand
remains robust. Industrial output growth was 8.3% from a record low of 3.8% in
the first two months of the year.
“My opinion is that the global economic stagnation will last three to four
years,” Fan Gang, a prominent economist and member of the central bank’s
monetary policy committee, told a conference over the weekend, according to
state media reports.
Watch China Real Estate Markets
The fall in the real-estate market has also shown some indications of
having bottomed out, with a strong rebound in property transaction volumes and
the first slight rise in month-on-month prices since last July.
Mr. Cao Jianhai, a senior government analyst, told the FT he expects
urban property prices to fall as much as 40 to 50% across the country in the
next two years as a result of huge oversupply and a serious disconnection
between prices and income levels. Such a fall could be devastating with investment in real-estate projects
collapsing and sending shocks throughout the economy of the world’s largest
consumer of cement, steel and other building materials. At a national level, average housing prices
tripled between 2003 and the peak in mid-2008 and are now 10 to 12 times
average income.
China Market Strong But Far From Peak
China is now up 47% from its lows late last year. However, China's
Shanghai Composite still has a long, long way to go before it makes a dent in
the losses it experienced in '07 and '08. As shown, even after its 47% run, the
index needs to gain 142% to reach its old highs. From its peak, China is still
down 59%.
China Sharply Slows Investment in Dollar Assets
China’s foreign reserves grew in the first quarter of this year at the
slowest pace in nearly eight years, edging up $7.7 billion, compared with a
record increase of $153.9 billion in the same quarter last year. China has lent vast sums to the United
States — roughly two-thirds of the central bank’s $1.95 trillion in foreign
reserves are believed to be in American securities. But the Chinese government
now finances a declining percentage of new American mortgages and government
borrowing.
China Poaching in US Backyard?
As Washington has been preoccupied with
the Middle East and the economic turmoil at home Latin America, China is
stepping into Latin America offering countries across the region large amounts
of money while they struggle with sharply slowing economies and a sharp drop in
commodity prices.
In recent weeks, the New York Times reports that China has been
negotiating deals to double a development fund in Venezuela to $12 billion,
lend Ecuador at least $1 billion to build a hydro plant, provide Argentina with
access to more than $10 billion in Chinese currency and lend Brazil’s national
oil company $10 billion. The deals share one theme - locking in natural
resources for years to come.
China’s trade with Latin America has grown
quickly this decade, making it the region’s second largest trading partner
after the United States. “This is how the balance of power shifts quietly
during times of crisis,” said David Rothkopf, a former Commerce Department
official in the Clinton administration. “The loans are an example of the
checkbook power in the world moving to new places, with the Chinese becoming
more active.”
