China's growth continues to confound all the negative sentiment. And internal consumer demand seems to be taking off. Nearly half a million cars in the first quarter.
The Chinese economy grew by more than 9 per cent in the first quarter of this year - its fastest quarterly expansion for six years - as the country reaped the benefits of joining the World Trade Organisation and runaway demand for cars and steel. The growth figures signal a shift in China in which the consumer has started to propel growth. For most of the past five years, that role has been played by centralised government spending.China's performance contrasts with that of the US and Europe. The US Federal Reserve said on Tuesday that US industrial output fell last month at the fastest pace this year. Germany's six leading economic institutes yesterday predicted that growth in 2003 would reach only 0.5 per cent and warned that the economy risked stagnating. Official Chinese sources, however, said the National Bureau of Statistics will announce a gross domestic product growth rate well in excess of 9 per cent on Wednesday.
One Chinese newspaper, Economic Observer, said the growth figure would be 9.9 per cent, but this could not be independently confirmed.The rapid rate of first-quarter growth compared with full year growth at 8 per cent last year, up from 7.3 per cent in 2001. The official government target in 2003 is "around 7 per cent", a conservative estimate that is in line with Beijing's overarching aim to quadruple GDP to over $4,000bn by 2020. But more important than the headline figure, which can be inflated by a number of one-off influences, was a growing sense that the quality of Chinese growth has improved. Despite domestic deflation, the government has previously boosted growth through a Keynesian programme of fiscal spending which has deepened the budget deficit. But now, there are several signs that domestic demand is becoming more self-sustaining and less state-driven.
Retail sales are expected to have risen in the first quarter from the 8.8 per cent growth recorded in 2002, and could near the 10.1 per cent rate posted in 2001.One of the main drivers of retail activity has been the frenetic desire to buy cars. Almost 440,000 cars rolled off mainland production lines in the first quarter of this year, as manufacturers raced to keep up with sales that expanded 56 per cent to 1.13m units last year. Steel sales also rose sharply, partly to feed the car sector. However, the firming steel prices that gave steel plants handsome profits have begun to ease in recent weeks and, according to some analysts, may soften considerably later this year.
To an extent, the surge in car sales has been precipitated by China's accession to the WTO, which legislated for a staggered decline in auto import tariffs year by year. As the price of imports has fallen, so domestic manufacturers have felt obliged to lower their product prices and make available enhanced services such as auto finance to spur sales. WTO accession has also propelled foreign direct investment, which rose to a record $52.7bn in 2002 and climbed 57 per cent to $13.1bn in the first quarter compared to the same period a year earlier. Much of this inflow has been lured by the partial liberalisation of investment regulations in various industries since Beijing joined the world trade body.
Source: Financial Times
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