Country Report China May 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, 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 6.5%. Growth will recover in 2010, but only to 7.3%.
• The economy will be supported by a rapid expansion of 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 0.5% in 2009.
• The outlook for exports is poor, but falling commodity prices will also depress import values. As a result, the trade surplus will remain huge. The current-account surplus will fall to 6.9% of GDP in 2009 and 5.2% in 2010.

Monthly review

• China's GDP growth slowed to 6.1% year on year in January-March, the lowest rate for almost 20 years.
• Economic growth was dragged down by falling exports but supported by strong consumption growth in the first quarter, as real wage growth accelerated to 11.2% year on year.
• Investment was also strong as relaxed credit policy helped to push total bank lending up by over 27% year on year in the first quarter of 2009.
• The Ministry of Commerce has blocked a US$2.4bn bid from a US beverage firm, Coca-Cola, for a Cayman Islands-registered Chinese fruit-juice company, Huiyuan.
• The has government instituted a series of currency swap agreements worth around Rmb650bn (US$95bn) as part of a strategy to internationalise use of the renminbi in global trading.
• China announced its first human rights action plan in April 2009, notably promising to allow journalists to criticise, comment and publish in accordance with the law.
• China and the US clashed briefly in March, when several Chinese boats challenged a US surveillance vessel in the South China Sea.

This report covers the following industry codes:
SIC Code: 37;10
NAICS Code: 336;212