Country Report China July 2009

Outlook for 2009-10

• The government's main priority is to support the economy amid concerns that rising unemployment could increase social unrest. But even if unrest grows, it is unlikely to result in a nationwide anti-government movement.
• Accountability will improve within the ruling Chinese Communist Party (CCP), but wider reforms to increase democracy will not occur. The government's campaign against official corruption will intensify.
• Amid signs that the Chinese economy has started to recover, the Economist Intelligence Unit has raised its forecast for real GDP growth to 7.2% (from 6.5% previously) in 2009 and 7.6% (from 7.3%) in 2010.
• The economy will be supported by a rapid expansion of government infrastructure spending and policies to revive housing investment. However, this support will lead to a substantial rise in the budget deficit.
• Amid slowing demand and falling commodity and food prices, consumer price inflation is expected to decline by an average of 0.5% in 2009.
• The outlook for exports is poor, but falling commodity prices will also depress imports. As a result, the trade surplus will remain huge. The current-account surplus will narrow to 7.2% of GDP in 2009 and 5.5% in 2010.

Monthly review

• June 4th 2009 marked the 20th anniversary of the Tiananmen Square massacre. The controversial anniversary was not publicly observed, and the government will have been relieved to see that it passed without incident.
• Relations between North Korea and China have deteriorated in recent weeks. Signs have emerged that the Chinese government is tiring of the North Korean regime after it conducted a nuclear test at the end of May.
• In June the US Treasury secretary, Timothy Geithner, met members of the? ? Chinese government in the capital, Beijing. During the discussions Mr? Geithner encouraged China to allow a faster appreciation of the renminbi.
• A state-owned aluminum company, Chinalco, failed in its bid to raise its stake in an Anglo-Australian mining company, Rio Tinto. The development has annoyed the Chinese government.
• There are signs that China's economic recovery is gathering pace. Economic data for May showed strong growth in industrial production, investment and the manufacturing sector.
• China's export sector remains in deep trouble after merchandise exports fell by 26.4% year on year in May??