Growing, Growing, (Not Quite) Gone!

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As recession looms elsewhere, all eyes are fixed on China and its enviable growth rates of over 10 percent. But it is clear that China, while better insulated that many, will not escape the credit crunch. We are already getting anecdotal evidence of harder times, and the figures are showing a slowing of growth – as Richard Spencer in the Telegraph notes:

    “Year-on-year growth for the third quarter was 9pc, down from 10.6pc in the first quarter and 10.1pc in the second, and a marked change from the stellar rates that had begun to be regarded as normal in recent years.

    These rates had also led to hopes that China’s growth would keep the world economy moving, despite the credit crunch in the West.

    Exporting manufacturers, caught by the collapse in consumer confidence in the United States and Europe, and property developers, suffering from a bursting price bubble of their own, all show signs of economic stress.

    However, domestic consumption and investment, the latter a mainstay of growth, are also affected.
    …The authorities are now signalling that their tightening of monetary policy will be reversed, with a cut in interest rates last week and signs that they are directly intervening in the stock markets, which have also been in freefall.

    …There was good news on the inflation front, however, with the consumer price index for September down to 4.6pc from 4.9pc, allowing room for a more expansionist policy.”

And what about future growth? Forbes reports:

    “UBS Securities downgraded its economic growth projection for China for 2008 to 9.6 pct and the 2009 forecast to 8.0 pct, citing the prospect of a deeper and longer recession in the US than previously expected and much weaker global growth.

    UBS…had previously forecast China’s GDP to grow 10.0 pct this year and by 8.8 pct in 2009”.

As thousands of textiles and toy firms (though most likely the smaller, and less efficient ones) are reported to be shutting down due to a combination of rising costs and falling exports, the government is now acting to boost the market, as noted in the Guardian:

    “China today [October 21] raised export tax rebates on toys, textiles and more than 3,000 other products as it attempts to mitigate the impact of the global slowdown.

    …Stephen Green, head of China research at Standard Chartered, told Bloomberg that export growth could tumble from 22% in the first nine months of this year to “zero or even negative growth” in 2009.

    …The head of the country’s economic planning agency pledged that it could maintain that rate as he visited Australia today.

    “Of course, due to the upturn of economic turbulence outside China there is some slowdown to our growth rate, but I think the growth rate of China’s economy will still be at 9%,” Zhang Ping, the chairman of the national development and reform commission, told reporters.

    He cited strong domestic demand, adding that only 1.2% of China’s growth last year came from exports.

    But other economists predict that GDP growth could fall to 7% or 8% next year.

    …In a statement, the Ministry of Finance said the rebate for toys would be raised from 11% to 14% as of November 1. The rebate on clothing and textiles would rise from 13% to 14%, following an earlier hike.

    In all, 3,486 types of products – about one-quarter of exports – will be covered.”

So, while growth is slowing, many in the west (and in China) will look to the domestic market for opportunities as people tighten their belts overseas. But such moves will have to be made thoughtfully, as the already intensive competition will…intensify, and as some sectors and regions will offer more hope than others.

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