Posted by: Frederik Balfour on June 25, 2009
Signs that China’s economic recovery is gaining speed have led to a flurry of optimistic revisions to GDP growth forecasts in the past week. First the World Bank upped its estimate for Chinese economic growth to 7.2% as against its March forecast of only 6.5% growth for this year. A few days later, the OECD weighed in with a prediction of 7.7%, versus a 6.3% figure three months ago. Credit Suisse is calling for 8% growth this year and 9% in 2010. [And for our many readers who come blogs on China for Indian content, Credit Suisse is calling for 6.2% and 7.4% growth of the Indian economy in 2009 and 2010.]
Evidence of strength abounds. Sales of automobiles have soared this year, a situation Detroit executives must look at with longing and envy. Auto sales in China climbed 14% in the first five months to nearly 5 million and the market could reach 11 million units this year. Encouraging too for the environment, is the fact that much of the growth came from smaller engine, fuel sipping autos.
More importantly, China’s property sector is rebounding faster than most had predicted. That’s one big reason why Standard Chartered Bank upped its growth forecast from 7.4% from 6.8%. Housing prices dropped sharply across the country starting last September, and sales volume slowed to a trickle. By early February sales volume picked up dramatically, and residential floor space sold in the first five months is up 27%.
What’s more prices have not only stopped falling but in cities like Shanghai they are picking up, contrary to expectations just a couple of months ago of a lousy year. Remarkably, not a single major property developer went bust during the downturn, helped in part by a massive injection of money into the economy by the government so far this year to goose the economy. Property accounts for about 25% of fixed asset investment, and a principal vehicle for Chinese to hold their wealth, so a buoyant market is good news for construction materials suppliers, makers of appliances and home furnishings manufacturers.
I must admit, somewhat sheepishly, to deriving a certain amount of satisfaction that things are turning out better in China than most people believed they would. Back in December I went fairly far out on a limb saying that China’s economic travails late last year marked the beginning of the end for China’s economic slump. Let us not forget that China is now the world’s third largest economy, and while it may still export a heck of a lot more than it imports, the world would be a lot worse off if it were shrinking, not growing.