Country Report China November 2009

Summary

The government's main priority is to support the economy amid concerns that rising unemployment may lead to increased unrest. But even if unrest grows, it is unlikely to result in a nationwide anti-government movement.
Little improvement is likely in the strained relations between the majority Han ethnic group and Tibetan and Uighur minorities. The government will maintain its hard line against separatism, stoking wider ethnic grievances.
Despite some tightening, monetary and credit policy will remain relatively loose. The Economist Intelligence Unit forecasts that real GDP will grow by 8.7% in 2010, before slowing to 8.4% in 2011.
As manufacturing and rural investment boosts industrial and agricultural output, consumer price inflation will remain weak but producer costs will rise. Asset price bubbles will emerge in property and shares.
An economic recovery and the reintroduction of several of the taxes that were cut in 2009 to support the economy will lead to a gradual narrowing of the budget deficit in 2010-11.
After a slump in 2009, exports should recover gradually in the forecast period. The trade surplus will remain large, but as imports are set to out-perform exports, the current-account surplus will shrink.

China's real GDP expanded by 8.9% year on year in the third quarter of 2009, taking average growth for the first nine months of the year to 7.7%.
A 26.2% year-on-year rise in the level of new floor space started in September has given rise to hopes that property development will join infrastructure investment as a major driver of economic growth in the coming months.
Vehicle sales continue to rise astronomically, up by 78% year on year in September (including an 84% increase in passenger-car sales). Purchases have been boosted by tax breaks for smaller vehicles.
The State Council (China's cabinet) signalled a marginal shift in economic policy priorities in October when it cited the need to balance the speed of growth against inflationary expectations as its first concern.
Russia's prime minister, Vladimir Putin, visited China in October, and the two countries signed an agreement in principle to build two large pipelines to carry Russian gas to China. Gas sales will not begin until 2014 at the earliest.
Major industrial firms saw a 1.6% year-on-year drop in operating revenue and a 10.6% fall in profits in January-August. The numbers were dragged down by dire figures from state-owned enterprises.