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Tuesday, July 15, 2003

China's Growth Continues as Expected

As predicted here at Bonobo Land, China's economy seems to have weathered the Sars storm much better than many expected, due in part to strong export demand, and strong liquidity 'easing' internally.

Despite the outbreak of severe acute respiratory syndrome, China this week is likely to report that first-half economic growth soared more than 8%, Monday's Wall Street Journal reported. Manufacturing jumped 16.9% in June from a year earlier, according to government figures. Exports grew by 32.6%. How did China do it despite widespread fears three months ago that SARS would stagger China's economy?

Continued government pump-priming, SARS-related tax breaks and easy credit by state banks kept money flowing into the economy. Chinese consumers kept spending, especially on big ticket-items like cars. Foreign investors canceled business trips but kept projects on track. Volkswagen AG just announced plans to invest 1 billion euros ( $1.13 billion) to expand its facilities and build new ones, as part of a drive to sell one million cars in China by 2007. General Motors Corp., already one of Shanghai's biggest investors, is pressing forward with plans for a huge expansion: a new $300 million plant near its existing one in Shanghai that will make midrange sedans. Perhaps most crucial of all: The disease faded much faster than many anticipated.

China's bounceback offers a glimmer of hope for U.S., Japanese and European companies in a generally stagnant global economy even though the Chinese economy is still only about 4% of global gross domestic product. It is especially welcome news in Asia, where China is emerging as a linchpin of regional growth. Whereas China ran a $103 billion trade surplus with the U.S. last year, it had a $68 billion deficit with the rest of Asia, including Japan. China is now the biggest importer of goods from Taiwan and South Korea. If Hong Kong is included, China is expected to become the biggest market for exports in the next couple of years for Japan, Singapore, Malaysia and the Philippines.
Source: Quicken

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