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New China growth model emerging from crisis: analysts
BEIJING, March 11 (AFP) Mar 11, 2009
The outlines of a new Chinese growth model to fend off the global crisis emerged in February, as government spending on infrastructure helped offset a deep drop in exports, analysts said Wednesday.

A week after Premier Wen Jiabao told lawmakers that the main task in 2009 would be to boost domestic demand to mitigate the impact of the worldwide slowdown, data showed this was gradually happening.

"The economy is going to combine a very weak trade sector and stronger investment, public investment in particular," said Robert Subbaraman, a Hong Kong-based economist with Nomura International.

The customs administration said Wednesday exports were down 25.7 percent in February year-on-year, while the trade surplus stood at 4.84 billion dollars -- shrinking sharply from more than 39 billion dollars the previous month.

In stark contrast to the external weakening, investment in plant and equipment at home was up by 26.5 percent in January and February from the same period in 2008, according to the statistics bureau.

In particular, spending funded by the central government was up 40.3 percent in the first two months, the statistics bureau said, suggesting that a stimulus package unveiled by Beijing in November was a crucial factor.

"The acceleration in investment reflected the positive effect of the four-trillion-yuan (585-billion-dollar) stimulus package in boosting the economy," said Zhuang Jian, senior economist with the Asian Development Bank.

"We can see a big increase in investment with government support," Zhuang was quoted as saying by state-run Xinhua news agency.

China has chiefly relied on exports to fuel its remarkable economic rise over the past three decades.

But such reliance has hit the world's third-biggest economy hard as overseas markets have dried up amid the global slowdown, giving added urgency to long-term government ambitions of creating more demand at home.

China's economy saw growth of nine percent in 2008, and in the fourth quarter it increased by just 6.8 percent, well below the eight percent often cited as needed to keep unemployment under control and avoid social unrest.

Large portions of the stimulus package have been directed at infrastructure projects such as roads and bridges.

But the government has also sought to help the export sector, and that money could be better spent elsewhere, argued Xing Ziqiang, a Beijing-based economist with China International Capital Corporation.

"The effect of fiscal stimulus such as export tax rebates on exports is very limited," he said.

"A decisive factor for exports is foreign demand, which cannot be resolved by export tax rebates."

As exports weaken while domestic spending picks up, the trade surplus, previously a sore point in China's relations with the outside world, will continue to shrink, said Jing Ulrich, a JP Morgan economist in Hong Kong.

"With exports continuing to weaken, China's trade surplus is likely to narrow further as imports of materials and machinery increase when government stimulus measures kick in," she said in a research note.

"China's imports consist largely of materials needed to supply infrastructure building and the export manufacturing sector."

However, for all its fiscal firepower, China should be careful not to become complacent, and look to use other economic tools as well, argued Lu Zhengwei, a Shanghai-based economist with Industrial Bank.

"The central bank should move swiftly and cut the interest rates as low as possible and then reduce the bank reserve requirements," he said.

"We moved slowly in 2008 amid the global crisis, and in 2007 we wrongly thought the Chinese economy was decoupled from the rest of the world."

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