China's economic miracle has been racking up ridiculous rates of growth almost without pause since 1979. Last year appears to have been another year when the economy finished around 9% larger than when it began the year, in spite of efforts by Beijing to slow growth by cutting back on credit to prevent overheating.
Not all bank managers followed orders to cut back on loans, and it doesn't help that many lenders still prefer to make loans to classically inefficient state enterprises rather than to well-run private firms with great prospects.
So how do things look for 2005? Growth looks about 8%, or thereabouts, some economists say – slow by the standards of China's recent past, but still robust by the standards of just about anywhere else. And these gains come on the basis of an increasingly mature and massive economy.
"We don't see a slump in fixed investment for this year. This is an important point that leads to a soft landing," said Grace Ng, Greater China economist at investment bank JP Morgan in Hong Kong.
Bad loans remain
The central bankers continue to work on cleaning up the huge bad-loan mess, and it will not be resolved any time soon – the massive balance of bad loans on the books of China's state banks remains the single biggest destabilizing fear on the economic horizon.
"A potential banking crisis would always remain a threat, but it remains unlikely," said David Cohen, Asian economic forecasting director for research house Action Economics in Singapore. But the use of state bank lending as the dominant economic policy tool is definitely in decline. Beijing increasingly turns to its shiny new monetary tool kit – interest rates and money supply – in line with the rest of the world. "That is a new challenge for the government, so it may be prone to some instability," cautioned Hui Tai-Cheng, an economist with Standard Chartered Bank in Hong Kong.
Meanwhile, bosses at a few industries, like autos and steel, remain glum, fearing another rotten year after a nasty 2004 – with investment in some sectors slowing and car prices falling sharply. But with inflation likely to be more under control, urban consumers look in better shape than a year ago.
Many pockets outside the cities are also fuller.
A government campaign has resulted in factory hands and laborers picking up long-owed salaries, US$4bn to date, said Vice- Premier Zeng Peiyan recently. High agricultural prices have given callused rural hands more for their produce. Sensibly cautious, China's consumers remain great savers, though that's changing slowly, giving the economy a boost.
"Some of the slack is being picked up by private consumption as well as exports," said Hui. "That should help to improve the sustainability of growth in China."
Post export-quota lift
While many exports are slowing, textiles and garments should rise perceptibly, thanks to the elimination of textile and garment quotas last month. Even a long-awaited appreciation of the yuan, parked at close to 8.30 to the US dollar for a decade, is unlikely to take the wind out of exports. "Ultimately the costs of Chinese manufacturing are so low, you need a significantly stronger exchange rate to affect China's competitiveness," said Hui.
Economists polled seem convinced a revaluation of the Chinese yuan will occur at some point during 2005, but they differ on when and by how much. Some reckon Beijing will allow the yuan to appreciate 3%-5% during 2005. Ng forecasts a revaluation of 7%. Some think Beijing needs to make a big jump, like 15%, to be of value.
Upbeat economists see inflation running in the 3%-4% ballpark, compared to an inflation rate in 2004 of around 5%. Economists generally expect rising wages and costs of more expensive materials, to filter through to prices, but there are those who also warn that deflation may return.
Global oil prices remain a wild and unpredictable bronco, one that increasingly impacts on China's growth prospects due to the escalations in oil imports to fuel economic growth. Electricity prices are seen heading north, albeit less than the rise in coal prices.
All told, unless a vicious tempest upsets the global economy, it's steady-as-she-goes for China.