China Business Forecast Report Q1 2009

Publication Date	November 2008
Publisher	Business Monitor
Product Type	Report
Pages	75
ISBN Number	not applicable
Product Code	BMI03031

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Summary

Deteriorating Growth Becomes Number One Priority

Economic growth slowed sharply in Q308, with real GDP growth falling from the 10.1% yoy figure recorded in Q208 to 9.0% in the JulySeptember period, far below consensus forecasts for a 9.7% expansion. This marked the first time since Q405 that growth had dropped below doubledigits, and the slowest pace since Q203. With economic growth slowing more sharply than anticipated in Q308, we have been forced to revise down our 2008 and 2009 growth forecasts, from 10.1% and 9.7% respectively, to 9.6% and 8.8%. We continue to highlight the risk that despite the best efforts of authorities, economic growth may slow significantly going forward, and that a muchfeared 'hard landing' scenario is not out of the question.

Although recent law amendments seeking to improve the access of foreign journalists and clamp down on corruption may go some way towards convincing detractors of Beijing's ongoing commitment to implementing political change, we highlight that the recent improvements are only minute steps in the grand scheme of things. Indeed, while progress is being made in some areas, others appear to be in reverse gear. This has been underlined by the recent announcement that 55 people have so far been sentenced for their roles in riots in Lhasa, Tibet in March 2008. Equally worrying is the revelation that Skype's Chinese partner, TOM Online, has been storing potentially sensitive text messages.

Beijing's monetary easing cycle took an unexpectedly aggressive turn on September 15 when the central bank cut its benchmark oneyear lending rate by 27bps the first such move since January 2002. Over the following six weeks, the People's Bank of China (PBoC) moved to cut lending and deposit rates by a further 54bps, and with headline inflation and economic growth momentum continuing to slow, we are anticipating further monetary easing from the Chinese authorities. This is likely to manifest itself in further interest rate and reserve ratio requirement cuts, as well as more weakness for the yuan currency against the US dollar.

China's prevalent corruption remains a key cause for concern for businesses operating in the country. Despite increased efforts to tackle graft, China was still ranked only 72nd (out of 180 countries) by Berlinbased corruption watchdog Transparency International in its 2008 Corruption Perceptions Index. This means that China's ranking was static on the previous year's index, despite its score improving marginally from 3.5 (out of 10) to 3.6, where a higher rating represents lower corruption. Meanwhile, China's corruption score of 54.7 (out of 100) in BMI's business environment ratings drags the country's overall score down to just 52.5, placing it 61st out of the 167 countries ranked.

Content

Executive Summary
Slowing Growth Becomes Number One Priority
Chapter 1: Political Outlook
- Swot Analysis
- Bmi Political Risk Ratings
- Domestic Politics
- Pace Of Political Reform Continues To Disappoint
- Although Recent Law Amendments Seeking To Improve The Access Of Foreign Journalists And Clamp Down On
- Corruption May Go Some Way Towards Convincing Detractors Of Beijings Ongoing Commitment To Implementing
- Political Change, We Highlight The Recent Improvements Are Only Tiny Steps In The Grand Scheme Of Things
List Of Tables
- Table: Political Overview
- Foreign Policy
- SinoRussian Ties Continue To Thaw: But For How Long?
- Premier Wen Jiabaos Recent Visit To Moscow Has Once Again Proven To Be Fruitful In Further Enhancing
- SinoRussian Ties, And We Expect Further Thawing Of The Historically Frosty Relationship Between Beijing And
- Moscow As Both Nations Aim To Challenge The Worlds Established Economic And Political Powers
- Chapter 2: Economic Outlook
  - Swot Analysis
  - Bmi Economic Risk Ratings
  - Economic Activity
  - Risk Of hard Landing Continues To Mount
  - With Economic Growth Slowing More Sharply Than Anticipated In Q308, We Have Been Forced To Revise Down Our
  - 2008 And 2009 Growth Forecasts, From 10.1% And 9.7% Respectively, To 9.6% And 8.8%
List Of Tables
- Table: Economic Activity
- Fiscal Policy
- Fiscal Package: Is It All That It Seems?
- Although The Cny4trn (Us$586bn) Stimulus Package Unveiled By The State Council On November 9 Is
- Undoubtedly A Positive For The Chinese Growth Outlook, We Highlight A Number Of Question Marks Surrounding The
- Proposal That Continue To Persist
List Of Tables
- Table: Fiscal Policy
- Monetary Policy
- Monetary Easing Intensifies As Growth Concerns Persist
- With Headline Inflation Figures Continuing Their Descent To Within More Comfortable Parameters, And Economic
- Growth Momentum Simultaneously Slowing, We Are Anticipating Further Monetary Easing From The Chinese
- Authorities
List Of Tables
- Table: Monetary Policy
- Banking Sector
- Abc Overhaul A LongTerm Positive For Banking Sector
- The Governments Decision To Restructure Agricultural Bank Of China (Abc) The Last Of Its Four StateOwned
- Major Banks In Order To Pave The Way For Its Eventual Public Listing Is An Encouraging Move, And Should
- Strengthen Both The Financial Position And Profitability Of The Bank, As Well As Help To Bring It More In Line With
- International Standards For Accounting, Disclosure And Capital Adequacy Requirements
- Property Sector
- Property Sector: Key Risks And Implications
- With Chinas Latest Boom Period Having Now Reached A Peak, And Economic Growth Momentum Subsequently
- Shifting Into A Lower Gear, The Countrys Once Booming Property Market Is Set To Experience A Downturn
- Chapter 3: 10 Year Forecast
  - The China Economy To 2018
  - Can The Dragon Be Tamed?
  - Our Core Scenario For The Chinese Economy Over The Coming Ten Years Is That Real Gdp Growth Will Gradually Cool
  - From DoubleDigit Levels Towards A More Balanced Growth Path, Led By A Structural Shift Away From Fixed Asset
  - Investment And Net Exports, Towards Private Consumption
List Of Tables
- Table: LongTerm Macroeconomic Forecasts
- Chapter 4: Special Report
  - Why The Us Can Remain World Superpower
  - Wealth Is Shifting East
  - The Uss Current Financial Woes Will Not Necessarily Undermine Its Position As A Global Superpower
List Of Tables
- Table: Geopolitical Power Index
- Chapter 5: Business Environment
  - Swot Analysis
  - Bmi Business Environment Risk Ratings
  - Business Environment Outlook
List Of Tables
- Table: Bmi Business And Operational Risk Ratings
- Institutions
List Of Tables
- Table: Bmi Legal Framework Ratings
- Infrastructure
- Market Orientation
List Of Tables
- Table: Asia, Fdi Annual Inflows
- Table: Bmi Trade Ratings
- Table: Top Export Destinations
- Operational Risk
- Infrastructure
- Chapter 6: Key Sectors
  - Infrastructure
  - Executive Summary
  - Chinas Economy Remains The Most Dynamic In The World, And Has Averaged Around 8% Growth For The Last 25
  - Years, With Every Sign That This Supercharged Growth Can Continue In The Future
List Of Tables
- Table: Economic And Construction Data
- Power
- Executive Summary
- China Continues To Be Ranked First, Above India, In Bmis Updated Power Business Environment Rating, Thanks
- To Its Vast Market Size And Excellent Growth Prospects
List Of Tables
- Table: Power Sector Historic Data And Forecast
- Chapter 7: Global Assumptions
  - Global
List Of Tables
- Table: Global Assumptions
- United States
- Eurozone
- Japan
- China
- Commodities