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Thursday, October 24, 2002


Economic growth in the third quarter of this year was again driven by globalization processes. Foreign direct investment utilization, for example, surged 30.2% Year onYear to US$15 billion (to 4.7% of GDP) while exports grew by 28.5% (domestic consumer demand growth, on the other hand, lagged amid increased savings due to fears over job security- produced by the shake outin the state sector -and rising service costs). The incremental export-to-GDP ratio rose to a record 89.6%, indicating the dependence on external demand. The expansion of foreign-invested enterprises was evident, given their 13.6% growth in value-added output. Overall production for export delivery jumped 25.2% YoY in 3Q, accelerating from 22.3% in 2Q. This exceeds overall industrial output growth of 13.1% and 12.5%, respectively, for 3Q and 2Q. Put simply structurally based, export lead growth in China is now one of the leading motors driving the increase in global consumption, and one of the key factors in understanding the downward, deflationary presseure on prices.

After the robust September trade and production data released yesterday, China unveiled the full 3Q02 economic report today. Real GDP expanded 8.1% YoY, in line with expectations, up from 8% in 2Q and 7.6% in 1Q. Although growth could ease in 4Q02, as global demand slows and shipments have been disrupted by the West Coast ports strike, we believe we are on track to reach our 7.8% growth forecast for the year. Nominal GDP growth continued to track below real GDP growth, illustrating persistent deflationary pressure. The economy expanded 7.7% YoY in nominal terms, 0.4 percentage points below the real growth rate, although that gap has narrowed from 1.5 percentage points in 2Q.
Source: Morgan Stanley Global EConomic Forum

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