Country Report China October 2008

Outlook for 2009-10

• Efforts to move economic growth on to a more socially and environmentally sustainable path, which are championed by the president, Hu Jintao, will guide government policy in 2009-10.
• 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.
• Ethnic tensions will remain high, especially in Xinjiang and Tibet, but unrest in these regions will not threaten national political stability.
• The government budget is forecast to remain in the black in 2009-10, following a surplus of 0.4% of GDP in 2008.
• The Economist Intelligence Unit expects real GDP growth to moderate to 8.5% in 2009, largely owing to the weaker outlook for net exports. Growth will accelerate slightly, to 8.7%, in 2010.
• The annual rate of inflation is expected to slow and will average 4.1% a year in 2009-10, owing to low food price inflation.
• China's current-account surplus will remain substantial during the forecast period (owing mostly to the huge trade surplus), although it will fall to the equivalent of 6.6% of GDP in 2009 and 5.7% in 2010.

Monthly review

• The Olympic Games, held in August in the capital, Beijing, went well from a domestic perspective. The games were very popular across China, helped by the fact that the country topped the medal table for the first time ever.
• The People's Bank of China (the central bank) announced a surprise cut in interest rates in mid-September. The move was aimed at boosting market confidence, amid growing turmoil in the US financial sector.
• The Chinese stockmarket has continued to fall, and the Shanghai A-share market is now 60% below the peak that it reached in October 2007, amid fears for the profit outlook for Chinese corporations.
• Consumer price inflation reached a 14-month low of 4.9% year on year in August. The main cause of the fall was a significant slowdown in food price inflation. Core inflation (which excludes food) stood at just 2.1% in August.
• The renminbi, which has been Asia's strongest-performing currency this year, fell against the US dollar in August. However, on a trade-weighted basis the renminbi continued to strengthen.
• A number of economic indicators, including industrial production and trade, all suggest that the economy is continuing to slow.

Source: Country Report