Country Report China September 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.
• 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 has raised its forecast for economic growth to 8.1% in 2009 to and 8.5% in 2010 (both stood at 8% previously).
• As manufacturing and rural investment boosts industrial and agricultural output, consumer price inflation will remain weak but producer costs will accelerate in 2010. Asset price bubbles will emerge in property and shares.
• Falling trade flows and tax breaks offered to businesses will reduce tax receipts in 2009. Coupled with rising spending, this will cause the budget deficit to widen to 4.2% in 2009. The deficit will then narrow to 3.2% in 2010.
• The outlook for exports is poor, but falling commodity prices will also depress the value of imports. The trade surplus will thus remain large. The current-account surplus will shrink to 6.1% of GDP in 2009 and 4.3% in 2010.

Monthly review

• The sales of two state-owned steel firms to private companies have been abandoned after rioting by workers who were concerned that the sales would lead to job losses.
• Sino-Australian ties have deteriorated after Australia granted a visa to an Uighur, Rebiya Kadeer, who the Chinese government blames for recent rioting in the Xinjiang region. However, bilateral economic ties remain strong.
• In August the premier, Wen Jiabao, stressed that the government's loose macroeconomic policy would be maintained to support growth, but credit issuance already appears to be tightening.
• Imports grew 3.7% year on year in volume terms in June, the first increase since October 2008. Nevertheless, in value terms both imports and exports fell in July, by 15% and 22.8% respectively.
• In August the World Trade Organisation backed many of the complaints made by the US in a suit against China regarding the restrictions that the latter places on importing and distributing foreign media products.
• Foreign direct investment in China fell by 20.3% year on year in the first seven months of 2009, to US$48.4bn.

Source: Country Report

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