Country Report China March 2009

Outlook for 2009-10

• The government's main priority is to support the economy, amid concerns that rising unemployment could increase social unrest. However, even if unrest grows, it is unlikely to create a nationwide anti-government movement.
• Accountability will improve within the ruling Chinese Communist Party, but wider reforms to increase democracy will not occur. The government's campaign against official corruption will intensify.
• The Economist Intelligence Unit expects real GDP growth to slow sharply owing to the massive global economic downturn. In 2009 real GDP will grow by just 6%. Growth will recover in 2010, but only to 7%.
• 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 substantial rise in the budget deficit.
• Amid slowing demand and falling commodity and food prices, consumer prices are expected to decline by an average of 0.2% 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 6.1% of GDP in 2009 and 4.5% in 2010.

Monthly review

• New loans in January reached Rmb1.6trn (US$230bn), roughly double the previous monthly record, as credit policy has remained loose.
• Industrial growth slipped to 5.7% year on year in December as external demand problems compounded the domestic slowdown. Electricity output dropped by 13% year on year in the same month.
• The Aluminium Corporation of China (Chalco) is struggling to win investor approval for a deal that could see it invest up to US$19.5bn in Australian mining firm Rio Tinto.
• Two long-term oil deals were signed with Russia and Brazil, who are to provide China with supplies in return for US$25bn and US$10bn respectively.
• Drought conditions affected several important wheat producing regions in the winter, but the severity of the drought was eased by rainfall in February.
• The government is providing policy and financial support to several pillar industries in order to assuage the pain of the current downturn.
• The new US secretary of state, Hillary Clinton, made her first visit to China in February. Mrs Clinton avoided excessive criticism of China's human rights record and emphasised the need for co-operation on economic matters.

Source: Country Report

This report covers the following industry codes:
SIC Code: 53;59;60;1
NAICS Code: 44;52;11