There has been room for optimism regarding China’s economy recently. Factories are still seeing less business, but the slide in activity has eased in the last few months, according to both government and CLSA gauges. Just in the last couple of days, Taiwan’s major laptop manufacturers and mobile phone chip maker – the lifeblood of low-end consumer electronics in China – have reported an uptick in sales. This is supposedly due to Beijing’s efforts to boost domestic demand, notably through subsidizing electronics purchases in rural areas.
Premier Wen Jiabao was keen to accentuate the positive in his first-ever online chat on February 28. While accepting weaknesses in demand abroad and challenges at home, Wen also highlighted evidence of domestic strength: Domestic consumption remains reasonably robust, new bank lending came to a record US$234 billion in January (state media reported yesterday that lending totaled US$117 billion in February, down month-on-month but up threefold year-on-year) and electricity output rebounded significantly in February following a six-month decline.
These signs of stabilization have met with a mixed response from economists. Some point to the numbers as evidence that economic growth bottomed out in the fourth quarter of 2008; others argue that external factors remain too weak, the resurgence in manufacturing activity being the product of companies restocking rather than any discernible rebound in overall demand.
Steel is often held up as an example of how hopes have turned to dust: In December steelmakers raised prices in anticipation of increased demand thanks to Beijing’s US$586 billion stimulus package, only to then cut prices when the surge in demand failed to materialize. Optimists counter that the full effects of the stimulus package, and the spike in bank lending, have yet to be seen. Disputes like this – as well as on the more fundamental question of how effective the stimulus will actually be – are the reason economists’ growth predictions vary so much right now. (Check out our January issue cover story for more this topic.)
Wen himself sought a more balanced note in his address to the National People’s Congress in Beijing today. He warned of “unprecedented difficulties and challenges,” stressing the need to “reverse the economic slide as soon as possible.” At a global level, demand continues to shrink, a movement toward global deflation is obvious, and trade protectionism is resurging, Wen noted.
At the same time, there was an unshakable commitment to achieving economic growth of 8% this year – in spite of the IMF’s prediction that GDP will expand by just 6.7%, and most other economists putting 8% as the maximum possible growth rate. “As long as we adopt the right policies and appropriate measures and implement them effectively, we will be able to achieve this target,” Wen said.
What has yet to be delivered is flesh to coat the bones of these policies. Much of the economic data was as expected – the extent of the budget deficit, the increase in fiscal spending, an ambitious target for bank lending (US$732 billion in new loans this year), and so on. However, despite promising a significant increase in investment, Wen said nothing about expanding the stimulus package. Neither did he give further information on how the US$586 billion will be spent.
Details on the latter – along with much anticipated social security spending plans and perhaps even some measures to boost the property market (Wen promised greater efforts to “keep real estate stable, and promote the steady and orderly development of the real estate industry”) – may emerge over the next few days.