World Sneezes, China's Just Fine???

World Sneezes, China's Just Fine???
Mar 19, 2008 23:19
FRANKENSTEIN Points: Join Date: Nov 29, 2004 Status: offline	Exceprts from Business Week: World Sneezes, China's Just Fine Economists say a global slowdown will largely spare a mainland economy still based on domestic consumption and cushioned by vast cash reserves By Frederik Balfour Now comes the U.S. bear market and housing collapse. If you heap this looming U.S. recession onto the litany of China's other woes does it spell a recipe for a total China meltdown? Don't bet on it. In fact, analysts say that the question of decoupling—the notion that China is contagion free from a global slowdown—is actually a misnomer, since "historically, the Chinese economy has never been coupled," says Jonathan Anderson, Asian chief economist at UBS. So questions of semantics aside, what's really going on? The answer is that while China is widely viewed as an export powerhouse, selling everything from garden gnomes to laptop computers overseas, most of its economic growth is still fueled by domestic investment and consumption, neither of which has shown much sign of slowdown so far. Anderson reckons that China's gross domestic product growth will slow to 10% this year, down from 11.4% in 2007, hardly the kind of slump to cause serious concern for Beijing. A More Open Economy Still, the Chinese economy is far more open than it was during the last U.S. recession of 2001. Back then, exports accounted for just 8.4% of gross domestic product and today it's about 40%. The European Union is China's biggest export market, with 20%, just ahead of the U.S. with 19%, while Japan and the rest of Asia take 25%, says Michael Spencer, Asia chief economist at Deutsche Bank. He's estimating growth will slow to 9.5% this year, but only half of that decline will be due to a slower increase in the growth of China's trade surplus. The reason the linkages from the trade sector to the rest of the economy aren't greater stems from the fact that domestic content only accounts for 25% of exports. Another is that although the export sector accounts for 80 million jobs, the sector most likely to get badly hurt is light manufacturing, which accounts for about 6.5% of total employment in China, while the export sector as a whole accounts for just 5% of total investment, says Anderson.

Mar 19, 2008 23:19

FRANKENSTEIN
Points:
Join Date: Nov 29, 2004
Status: offline

Exceprts from Business Week:

World Sneezes, China's Just Fine
Economists say a global slowdown will largely spare a mainland economy still based on domestic consumption and cushioned by vast cash reserves

By Frederik Balfour

Now comes the U.S. bear market and housing collapse. If you heap this looming U.S. recession onto the litany of China's other woes does it spell a recipe for a total China meltdown? Don't bet on it. In fact, analysts say that the question of decoupling—the notion that China is contagion free from a global slowdown—is actually a misnomer, since "historically, the Chinese economy has never been coupled," says Jonathan Anderson, Asian chief economist at UBS.

So questions of semantics aside, what's really going on? The answer is that while China is widely viewed as an export powerhouse, selling everything from garden gnomes to laptop computers overseas, most of its economic growth is still fueled by domestic investment and consumption, neither of which has shown much sign of slowdown so far. Anderson reckons that China's gross domestic product growth will slow to 10% this year, down from 11.4% in 2007, hardly the kind of slump to cause serious concern for Beijing.

A More Open Economy
Still, the Chinese economy is far more open than it was during the last U.S. recession of 2001. Back then, exports accounted for just 8.4% of gross domestic product and today it's about 40%. The European Union is China's biggest export market, with 20%, just ahead of the U.S. with 19%, while Japan and the rest of Asia take 25%, says Michael Spencer, Asia chief economist at Deutsche Bank. He's estimating growth will slow to 9.5% this year, but only half of that decline will be due to a slower increase in the growth of China's trade surplus. The reason the linkages from the trade sector to the rest of the economy aren't greater stems from the fact that domestic content only accounts for 25% of exports. Another is that although the export sector accounts for 80 million jobs, the sector most likely to get badly hurt is light manufacturing, which accounts for about 6.5% of total employment in China, while the export sector as
a whole accounts for just 5% of total investment, says Anderson.

Mar 19, 2008 23:19

FRANKENSTEIN
Points:
Join Date: Nov 29, 2004
Status: Offline

Bear in mind too that China continues to amass huge amounts of foreign exchange. In January alone reserves jumped $61.6 billion, bringing the country's cash hoard to $1.589 trillion. That's quite a pile available to the government should the need arise to prime the pump of an ailing economy. But that is highly unlikely, says JPMorgan (JPM) China economist Frank Gong. "Investment growth, loan growth, consumption growth, and China growth are strong," he says.

The Chinese proclivity to sock away huge amounts of savings provides a further cushion to a downturn. That means the disturbingly high degree of leverage that got U.S. hedge funds and households into the subprime mess is a problem quite unknown in China where the minimum mortgage down payment is 30%. "Residential mortgages are probably the best asset in the banking sector," says Ryan Tsang, senior director of banking research at Standard & Poors (MHP).

What are your comments to the above article? Do you think that China is immune to the global slowdown?

Mar 19, 2008 23:39	#2
GARYKINKADE Points: Join Date: Jan 8, 2008 Status: Offline	Right now the country of China is the 800lb. gorilla and the rest of the other countries are chimpanzees( in regards to current and potential economic growth).

Mar 20, 2008 14:56

MARRIE
Points:
Join Date: Jan 7, 2008
Status: Offline

As Dr. Gary Quack said, Gorilla has a huge appetite, in other word, large population/or domestic self-consumption market is a natural cushion for chine being away from economic depression.

world sneezes, china is not fine, The shortage of oil and other energy, to some extent, triggers the inflation. China is contituing tightening policy via further raising reserves instead of increasing int. rate, the story behind the scene, my guess, irregulated cash still in the bubble mkt. can somebody tell me, years ago, the guy working with petrochina in singapore unit, bet crude in globla commodity mkt and lose state-owned assets?

Mar 24, 2008 21:52

JIMMYB
Points:
Join Date: Feb 7, 2007
Status: Offline

If you read the recent news, you wil find that several cities in southern China are lack of oil now. Although SINOPEC has got subsidies from the central government (about 12.3 billion yuan), they say that the money can't solve the problem. To solve the problem thoroughly, the government should improve the pricing system. I guess that the SINOPEC wants the government to allow them to raise the oil prices. This is impossible. A week ago, PetrolChina and SINOPEC submit their application to NDRC to lower the import tax on refined oil. It seems that they can't meet the domestic demand on oil.

Mar 25, 2008 09:34

MARRIE
Points:
Join Date: Jan 7, 2008
Status: Offline

((I guess that the SINOPEC wants the government to allow them to raise the oil prices. This is impossible. A week ago, PetrolChina and SINOPEC submit their application to NDRC to lower the import tax on refined oil. It seems that they can't meet the domestic demand on oil. ))

I read that with u$ rally, the pricing of oil future contracts is sliding. it's true government is asked lower import tarrrif in Korea and China. the question is if oil is in shortage or not, or if it's a fight between long side and short side in commody speculative mkt.

Post a Reply to: World Sneezes, China's Just Fine???