Country Report China January 2009

Outlook for 2009-10

• The priority for the government is to support the economy, amid concerns that rising unemployment could lead to an increase in social unrest. Growing unrest is unlikely to lead to a nationwide anti-government movement.
• Accountability will improve within the ruling Chinese Communist Party, but wider reforms to increase democracy will not occur. The campaign against official corruption will continue.
• The Economist Intelligence Unit expects real GDP growth to slow sharply in response to the massive global economic downturn. In 2009 real GDP will grow by just 6%. Growth will recover in 2010, but only to 7.2%.
• The economy will be supported by a rapid expansion in government infrastructure spending and policies to revive housing investment. However, this will lead to a rise in the government's budget deficit.
• Amid slowing demand and falling commodity and food prices, consumer price inflation is forecast to average zero in 2009.
• Despite the poor outlook for exports, falling commodity prices will depress import values. As a result, the trade surplus will remain huge. The current-account surplus will narrow to 7.8% of GDP in 2009 and 5.8% in 2010.

Monthly review

• The government became concerned about growing social unrest across China, arising from slowing economic growth and rising unemployment.
• Relations between China and the EU deteriorated after the French president, Nicolas Sarkozy, met the exiled Tibetan leader, the Dalai Lama.
• In an aggressive loosening of monetary policy, the People's Bank of China (the central bank) cut interest rates in late November by 108 basis points, taking the one-year lending rate to 5.58%,and the one-year deposit rate to 2.52%.
• The government has outlined plans to increase investment in nuclear power to prevent China from becoming overly dependent on imported oil and gas.
• Lou Jiwei, the chairman of the China Investment Corp (CIC), the Chinese sovereign wealth fund, said that the CIC is no longer interested in taking stakes in Western financial institutions.
• A number of economic indicators for November pointed to a further slowdown in economic activity. Car sales and exports both fell on a year-on-year basis, while industrial production growth weakened further.
• The renminbi has remained fairly stable against the US dollar in recent months. However, owing to the strength of the dollar since September, on a trade-weighted basis China's currency has still appreciated.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60
NAICS Code: 52