A Dose of Medicine for Slowing GDP

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As the global slowdown continues, China (in contrast to the recent upward restatement for 2007) is showing signs of slowing – in the last quarter of 2008 GDP growth was 6.8%, which is slow by recent Chinese standards. MarketWatch reports:

    “Gross domestic product expanded 6.8% in the October-to-December period, compared to a year ago, easing from a 9% expansion in the preceding three-month period, according to data released by the National Bureau of Statistics Thursday. The result was in line with a median estimate for a 6.9% expansion of 13 economists polled by Dow Jones Newswires. For the full calendar year GDP expanded 9%, cooling from a 13% expansion in 2007.”

    …China must keep up a rapid pace of growth just to maintain employment equilibrium, as more people are joining the workforce each year than leave. Beijing forecasts the Chinese economy will grow about 8% this year.

    …Revised economic data for 2007, released by Beijing earlier this month, showed China overtook Germany as the world’s third-largest economy.”

Bloomberg adds that:

    “Premier Wen Jiabao has pledged more measures after unveiling a 4 trillion yuan ($585 billion) package in November and the central bank may add to five interest-rate cuts since September.

    …The slowdown from the previous three months would be the sharpest since quarterly data began in 1994. The pace compares with 13 percent growth in 2007. Morgan Stanley cut yesterday its forecast for this year’s expansion to 5.5 percent.

    …Consumer-price inflation may have cooled to 1.6 percent in December from a 12-year high of 8.7 percent in February, a second survey showed. Producer prices fell 0.1 percent, the first drop since 2002, economists estimated.

    Besides the export slowdown, slumps in stocks and property are undermining consumer confidence and growth.

    …Exports will decline 6 percent this year, down from a 17.2 percent gain in 2008, Fitch Ratings said Jan. 16. The central bank has helped exporters by halting the yuan’s gains against the dollar over the past six months.”

While exports are going down, the government is planning lots of spending (as reported here). The plan includes the expansion of health provision. According to the New York Times:

    “China announced Wednesday that it intended to spend $123 billion by 2011 to establish universal health care for the country’s 1.3 billion people.

    …Providing universal health care is seen by some economists as a way to stimulate domestic spending during the current economic downturn. The Chinese have a high savings rate, and one of the reasons usually cited is their worry about possible medical expenses because China lacks a social safety net, including affordable health care.

    …Xinhua reported that the plan approved Wednesday would aim to provide some form of medical insurance for 90 percent of the population by 2011. Each person covered by the system would receive an annual subsidy of more than $17 starting in 2010. Medicine would also be covered by the insurance, and the government would begin a system of producing and distributing necessary drugs this year.”

    That sounds like good news for the “harmonious society”, as well as a welcome shot in the arm for the economy.

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