More Economic Upgrades of China GDP Growth Forecast

Posted by: Frederik Balfour on June 25


Chinaflag.bmp New 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.

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 degree 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. And 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.

Reader Comments

Jim Walker

June 26, 2009 11:32 AM

Well put Frederik. My investments have risen dramatically due to China's growth. They've managed to achieve to impossible growing at 8% in a time of deep global recession as the world's third or even second largest economy in the world. All signs are that growth with go through the roof next year be around 10%. Although risks still exist, China will definitely be the greatest story for the next 5 years.

Steve

June 27, 2009 02:54 AM

China should have been made to play fair many years ago. In trade talks we should insist on a more equal balance, with China buying much more from the US. ------ They could buy at least $ 5 billion a year on waste water equipment, same on coal plant upgrades or other environmental measures. ---- They should kick in $ 25 billion a year to the US just for copyright infrigment like for software.

James Mason

June 28, 2009 11:49 PM

Steve - And pigs will definitely become airborne!

Paul

June 29, 2009 09:53 AM

I don't know exactly what James Mason is trying to say to Steve above but in all fairness, you have to admire them for their resilience and their entrepreneurial spirit. It is better for the world and for all of us for China to succeed than for it to fail as I see and know many envious people out there who would love to see the country fail and fall. I don't think thats wise but rather evil and I surely hope that will never happen.

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BusinessWeek’s Joe Weber, Patricia O'Connell, Michelle Conlin, Frederik Balfour, Peter Coy, Greg Spielberg and Roger Crockett examine The Case for Optimism by looking past the financial turmoil and economic unrest gripping the globe to focus on the promising future that lies on the other side of this storm. We’ll chronicle the forward thinkers investing in R&D, launching promising new products, entering new markets, or implementing management and leadership.

See why BusinessWeek Editor-In-Chief Stephen J. Adler is optimistic about the economy amid the sharpest downturn since the Great Depression.

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