Oct. 6 (Bloomberg) – Bloomberg’s Stephen Engle reports on the World Bank
lowering its growth forecast for East Asia for the second time this
year, citing the slowdown in China for downgrading expectations. He
speaks to Angie Lau on “Asia Edge.” (Source: Bloomberg)
The World Bank lowered its forecasts for growth in developing East
Asia this year and next as China’s expansion moderates and policy makers
brace for tighter global monetary conditions.
The region is
forecast to grow 6.9 percent in 2014 and 2015, down from 7.1 percent
projected in April, the Washington-based lender said in its East Asia
and Pacific Economic Update released today. China will expand 7.4
percent this year and 7.2 percent next year, compared with 7.6 percent
and 7.5 percent previously forecast, the report showed.
Data
released last month showed China’s industrial-output expansion at its
weakest since the global financial crisis, while moderating investment
and retail sales growth underscore the risks of a deepening economic
slowdown led by a slumping property market. Significant uncertainties
remain that could affect the region’s growth including downside risks in
the euro area and Japan, a sharp tightening in global financial
conditions and international and regional geopolitical tensions, the
World Bank said.
“The best way for countries in the region to
deal with these risks is to address vulnerabilities caused by past
financial and fiscal policies, and complement these measures with
structural reforms to enhance export competitiveness,” Sudhir Shetty, the World Bank’s East Asia and Pacific chief economist, said in a statement.
Photographer: Brent Lewin/Bloomberg
A bicycle rickshaw driver passes by the Bell Tower in Beijing. China’s growth is... Read More
Growth in the region excluding China is expected to
accelerate to 5.3 percent in 2015 from 4.8 percent this year as a
gradual recovery in high-income economies boosts demand for its exports,
and domestic economic reforms advance in the large Southeast Asian
economies, the World Bank said.
Exports Boost
It
raised its forecast for Malaysia’s 2014 growth to 5.7 percent from 4.9
percent in April because of robust exports in the first half, it said.
The surge in shipments helped growth in the economy unexpectedly
accelerate to the fastest pace in six quarters in the three months
through June from a year earlier.
China’s growth is expected to
slow as the government implements policies to address financial
vulnerabilities and structural constraints, the World Bank said.
As
it seeks to strike a balance between containing risks and meeting
growth targets, structural reforms in sectors previously reserved for
state enterprises and services could help offset the impact of measures
to contain local government debt and curb shadow banking, the report
showed.
Protests in Hong Kong will probably slow growth there
this year but haven’t so far had a significant impact on China’s
economy, Shetty said today.
Trade Flows
The world’s second-biggest economy was the top trading partner for the 10-member Association of Southeast Asian Nation’s last year, according to data from the Asean-China Centre.
The
World Bank also cut its forecasts for Thailand’s growth this year to
1.5 percent from an earlier estimate of 3 percent. The country’s junta,
which seized power about four months ago in a coup, has said it will
stop buying farm products directly from growers as state purchases spur
overproduction, distort the market and create stockpiles.
The
country needs to pursue further fiscal reforms following the scrapping
of the rice-pledging scheme and proposals including the revision of
property income taxes warrant serious consideration by the new
government, the World Bank said.
World Outlook
The
global economy is showing signs of recovery, albeit at an uneven pace,
while significant uncertainties remain regarding the strength and
sustainability of the recovery in high-income economies and about the
timing of policy actions by central banks in these countries, the World
Bank said.
The world’s growth is forecast to be 2.6 percent growth in 2014, and an average of 3.3 percent from 2015 to 2017, it said.
“In
this uncertain global environment, there is still a window of
opportunity to enact critical, and in some cases overdue, reforms,” the
World Bank said in its report. “The short-term priority in several
countries is to address the vulnerabilities and inefficiencies that have
been created by an extended period of loose financial conditions and
fiscal stimulus.”
To contact the reporter on this story: Sharon Chen in Singapore at schen462@bloomberg.net
To contact the editors responsible for this story: Stephanie Phang at sphang@bloomberg.net Brett Miller, James Mayger
China’s
long-term growth outlook is solid, but there will be rocky times along
the way. Figuring out when those rocky times will hit is difficult.
Businesses involved in China for the long term can be confident of
economic growth, but the company that needs strong sales in one
particular year is much less certain.
In this article we’ll look at the drivers of China’s long-term
growth, then address the short-term challenges. I’m not a China expert,
but the country is important to some of my clients so I take an
outsider’s view of the statistics and stories coming from the country.
First, though, let’s address the question of whether we spend too
much time talking about China. China is the second largest economy in
the world and the United States’ second-largest export destination. Many
commodity-based economies have risen in recent years with China’s
growth. Moreover, China’s opportunities and challenges are similar to
what other emerging countries are facing, so it’s a bellwether for a
larger group of countries.
China’s long-term growth story is fairly simple. In the late 1970s,
Deng Xiaoping enacted reforms to allow farmers to cultivate family plots
rather than communal farms. He tolerated small entrepreneurs. A
migration from poor rural areas to cities with opportunities was ignored
though it was illegal. These reforms substantially raised the
productivity of poor people in the country. Foreign investment followed,
further increasing productivity. Trade with other countries increased,
again tolerated by the government. In short, economic reforms allowed
poor people to become more productive, and they earned rising incomes.
This story won’t go on forever, but there’s substantial room for further gains. China ranks 93rd
in the world on GDP per capita, indicating substantial room for
improvement. China’s per capita output would have to grow by 32 percent
just to match the current world average. It would have to more than
triple to equal the European average. There’s no reason China won’t
eventually get close to the output level of the developed world. That
will drive above-average growth rates for many years. The Economist has noted a decline in the number of Chinese who
are of working age, caused by the one child policy. The policy began in
1979, so the first wave of only-children is now 39 years old, about
halfway through their working years. The Economist calls the
phenomenon “peak toil,” but it is less relevant to China than to a
developed country such as Japan. In China, increased productivity of
existing workers is the huge force, while growth of the total labor
force is a relatively small factor.
Although the long-term outlook is positive, the country’s transitions
create stumbling blocks. Environmental concerns are one major issue. By
some reports, some domestic coal and iron ore is not being used because
it’s too dirty; instead, steel and coal are imported. Factories are
expected to clean themselves up, with short-term adjustment costs.
The mix between exports and domestic consumption is another
short-term issue. Early on, the great surge of output was for
international markets. Rising incomes have caused a growing consumption
economy, and the transition is not totally smooth.
With rising incomes have come rising real estate prices, leading to a
housing boom. Some analysts anticipate a hard landing from the boom,
but so far it’s been fairly soft. However, this is another transition
that presents an obstacle to a smooth path for the Chinese economy.
Rising wages have also caused a loss of some of the substantial cost
advantage that China has had, with additional loss from the rising
foreign exchange rate. Some American companies are “re-shoring” their
operations. Costs are still lower in China, especially for
labor-intensive work, but lower costs don’t always cover higher
transportation costs, quality monitoring costs and the economic loss
from a longer supply chain.
Chinese consumers are increasingly concerned about the quality of the
products they buy, especially after the 2008 contaminated milk scandal.
This concern is strongest in food products, but also extends across all
locally made products, including apparel and kitchen gadgets. Local
companies producing for the local market, however, are used to cutting
corners. Chinese companies that produce high quality exports for the
likes of Apple are not producing much for their own market. Eventually,
companies will match their production to the quality that consumers are
willing to buy, but the transition is likely to be ragged.
China’s political leaders understand, or at least give lip service,
to the need for further structural reforms, especially in credit
allocation. The first default on a bond issue in the country is actually
good news in this regard, indicating that problems will not always be
swept under the rug. Political leaders have also begun an
anti-corruption campaign, which sounds like foxes guarding the chicken
coops. Altogether too much cronyism occurs in the nation’s
political-economic decisions.
An economy is not really about aggregates such as gross domestic
product or industrial production. Actual goods and services are produced
and sold to particular consumers, businesses and government
departments. A smoothly-functioning economy gets the right goods
produced and sold at the right prices. A good economy also adjusts the
composition of output to reflect changes in tastes, technology and
materials costs. However, the more changes that need to be made, the
harder it is to get all of the production and consumption decisions
right. China has many changes to make. Their economic system still has
too much cronyism and protection of state enterprises, which slow down
adjustments.
China is likely to have a pronounced slump in the next few years—but a
temporary slump. Continued smooth growth is simply too much to hope for
in a somewhat-clumsy economy subject to numerous major transitions.
When this slump occurs is impossible to predict. As in the United
States, some analysts are always bearish and some always bullish. It’s
unlikely that anyone will switch from bull to bear at exactly the right
time.
The IMF predicts very gradual deceleration in the coming years,
and that’s a fine forecast—if nothing goes wrong. My advice is to plan
for long-term growth, but also do contingency planning for a sharp,
short-lived recession sometime in the next few years. Just when it will
occur, however, I cannot say.
[Updated 7/21/2014 to correct the name of Deng Xiaoping.]
China
is the 2nd largest economy in the world according to both GDP (current
prices, US dollars) and GDP (PPP). In 2012, China’s GDP (current prices,
US dollars) was US$8.227 trillion and its GDP (PPP) was US$12.405
trillion.
In 2012, China was the 18th fastest growing economy in the world,
with a real GDP growth rate (constant prices, national currency) of 7.8
percent. Although the figure is its slowest growth since 1999, it is
also representative of a maturing economy as it gradually transition
from a developing to developed nation.
Since 1949, the Chinese government has been responsible for planning
and managing the national economy. But it was only in 1978 – when Deng
Xiaoping introduced capitalist market principles –that the Chinese
economy began to show massive growth, averaging 10 percent GDP growth
over the last 30 years. During that period the size of the Chinese
economy grew by roughly 48 times, from $168.367 billion (current prices,
US dollars) in 1981 to $8.227 trillion.
From 2003 to 2010, the Chinese economy experienced near-uninterrupted
double-digit growth – with the exception of 2008 and 2009, during the
global economic downturn. Nevertheless, the Chinese economy still
managed to post respectable growth figures during that period – 9.635
percent and 9.214 percent respectively.
China Economic Forecast
In 2013, its GDP (PPP) is expected to reach $13.623 trillion – or a
9.81 percent increase. Comparatively, China’s GDP (PPP) grew by 9.73
percent from 2011 to 2012. Forecasts for the next five years predict the
nation’s GDP (PPP) will grow by an average of 13.24 percent per annum,
reaching $22.641 trillion in 2018. Nonetheless, while its GDP (PPP) is set to overtake that of the
US’s, China’s nominal GDP (current prices, US dollars) will still be
below that of its rival in 2018. The US’s GDP (current prices) is
forecasted to hit $21.101 trillion in five years, significantly higher
than China’s $14.911 trillion. Going by current growth rates, it will
take another 30-40 years for China to become the world’s largest economy
in both GDP (PPP) and GDP (current prices).
Since initiating market reforms in 1978, China has shifted from a
centrally planned to a market based economy. More than 600 million
citizens have been lifted out of poverty as a result, but over 170
million people still live below the $1.25-a-day international poverty
line. In 2012, China’s GDP (PPP) per capita was $12,405.67. This is 37
times higher than what it was just 30 years ago. By 2018, China’s GDP
(PPP) per capita will climb from the 90th to 75th highest in the world –
at $16,231.50. This however will still be below the forecasted world
average of $18,867.17. Find out more about the Chinese Economic Forecast on the Economy Watch Economic Statistics database.
China Economic Profile
China Economic Structure
China has one of the most diverse spread of industrial production in
the world, fitting for a country that is called 'The World’s Factory'.
Since 1978, the nation has gradually reduced its reliance on state-owned
enterprises (SOEs) – though they still account for 46 percent of
China’s industrial output, down from 77.6 percent 35 years ago
Nonetheless, the government has in recent years renewed its drive to
support state-owned enterprises in sectors it considers important to
national economic security – particularly natural resources, banking and
telecommunications. In a major push to boost the state sector in 2003,
Beijing set up the State-owned Assets Supervision and Administration
Commission as a watchdog to expand and strengthen large industrial state
enterprises.
Consequently SOEs, combined assets rose to 28 trillion yuan ($4.56)
2011 from 7.13 trillion yuan in 2002. Revenues have also soared from
3.36 trillion yuan to 20.2 trillion yuan.
Critics argued that the SOEs are stifling innovation and restricting opportunities for private companies. Though
fewer in number than before, as a result of massive state
consolidation, today’s SOEs are far more powerful. As of 2012, large
state-owned enterprises produced over 50 percent of China’s goods and
services and employed over half of the nation’s labour force. 65 of the
Chinese SOEs also made it into 2012 Fortune Global 500 list, including
State Grid Corporation of China, which operates the country's power
grid, and oil companies China National Petroleum Corporation and
Sinopec.
The Chinese economy can also be understood as a decentralised
collection of several regional economies, with large imbalances between
the rural and urban population.
The three wealthiest and most important economic regions are all on
the east coast: the Pearl River Delta close to Hong Kong, The Yangtze
River Delta surrounding Shanghai and the Bohai Bay region near Beijing.
It is the rapid development of these areas that is expected to have the
most significant effect on the Asian regional economy as a whole, and
Chinese government policy is designed to remove the obstacles to
accelerated growth in these wealthier regions.
Over the past two decades however, China has embarked on an ambitious
program of expressway network expansion. By facilitating market
integration, this program aims both to promote efficiency at the
national level and to contribute to the catch-up of lagging inland
regions with prosperous Eastern ones.
The consequence of the program saw China’s two major financial
centres, Beijing and Shanghai, experience the lowest growth in 2012 –
7.7 percent and 7.5 percent respectively – compared to growth rates of
over 13 percent for Tianjin, Chongqing, Guizhou, Yunnan in the more
impoverished interior. Find out more about China Economic Structure on EconomyWatch.com
China Exports, Imports and Trade
China is the world’s second largest trading nation behind the US –
leading the world in exports and coming in second for imports. From
2009-2011 its trade to GDP ratio was 53.1 percent, while its trade per
capita was $2,413.
Since its accession into the WTO in 2001, China‘s share in global
trade has doubled – accounting for 10.38 percent of the world’s
merchandise trade exports and 9.43 percent of merchandise trade imports. For many countries around the world, China is rapidly becoming
their most important bilateral trade partner. In 2011, they were the
largest exporting/importing partner for 32 and 34 countries
respectively.
However, there have been concerns over large trade imbalances between
China and the rest of the world. The US in particular has the largest
trade deficit in the world with China at $315 billion, more than three
times what it was a decade ago.
There have also been a growing number of trade disputes brought
against, mainly for dumping, unfair subsidies by the Chinese government,
intellectual property and the valuation of the yuan. Nonetheless its
WTO entry ensures that the country will remain a key figure in
international trade.
Domestically, the Chinese government has been keen to reduce the
economy’s reliance on exports and focus on internal consumption. In
March 2013, China’s new leadership announced that they would move to
recalibrate the economy, acknowledging that there is a “growing conflict
between downward pressure on economic growth and excess production
capacity.” Find out more about China Exports, Imports & Trade on EconomyWatch.com
China Industry Sectors
The most dominant sector of China’s economy remains its manufacturing
and industries. Despite seeing a 3.3 percentage point drop in its
composition of the nation’s GDP, industries still accounted for 45.3
percent of China’s GDP in 2012 – cementing China’s position as the world
leader in gross value of industrial output. Nevertheless, despite the dominance of Industries in the
composition of China’s GDP, Services is catching up quickly – and may
overtake Industries by the end of the year. In 2012, Services accounted
for 44.6 percent of China’s GDP, just 0.7 percentage points behind
Industries. Comparatively just three years ago, that gap was 8.1
percentage points wide.
Finally, Agriculture accounted for 10.1 percent of China’s GDP in
2012. The economic reforms introduced in 1978 saw China de-collectivize
agriculture, yielding tremendous gains in production as a result.
Today, China is the world's largest producer of agricultural products
- ranking first in the world for rice, wheat, potatoes, sorghum,
peanuts, tea, millet, barley, cotton, oilseed, pork, and fish. About 300
million Chinese are employed in the agriculture sector – making up 34.8
percent of the labour force. Find out more about China Industry Sectors on EconomyWatch.com
China's economy is growing into multiple new sectors. For example,
the eCommerce sectors has been growing, both with large sites such as Alibaba, and with multiple small retailers, such as this site, offering clothes shopping online.
