China will likely manage a soft landing in 2012. But economic imbalances in the Year of the Dragon will challenge the Chinese Communist Party.
In the Chinese Zodiac, China is now entering the Year of the Water Dragon, marking a year of transition, uncertainty and change.
The Year of the Dragon is indeed set to be a critical year for political change in China – at the very highest levels of the national government. This autumn, the 18th National Congress of the Communist Party will elect the new Central Committee and Politburo Standing Committee members.
Current President Hu Jintao and Premier Wen Jiabao are due to step down from the Standing Committee to make way for the new generation of leaders, from amongst whom the new Chinese president and premier will be appointed in March 2013.
In the Year of the Dragon, China – which is now the world's second largest economy – is also facing considerable economic uncertainty. There’s clear evidence that Chinese economic growth momentum has moderated during the second half of 2011. The eurozone, still a major market for Chinese exports, is already sliding into recession, while the momentum of U.S. economic recovery, although encouraging in recent months, remains moderate at best.
Latest GDP growth data released for Q4 2011 showed that Chinese GDP growth had moderated to a pace of 8.9 percent year-on-year, the slowest in ten quarters. This reflects various factors, including weakening EU demand for Chinese exports, as well as the impact of significantly tighter monetary policy in order to curb inflation pressures.
There are signs that the Chinese government’s monetary policy tightening in 2011 has been successful in curbing inflation, with the year-on-year CPI inflation rate slowing from 6.5 percent in July 2011 to 4.1 percent by December.
However, the recent growth slowdown has heightened concerns about whether the Chinese government can successfully engineer a Goldilocks scenario – a “not too hot, not too cold” – of moderate inflation and a soft landing for the economy, or if China will face a hard landing with growth slowing sharply.
IHS Global Insight's central case forecast for the Chinese economy in 2012 is for a soft landing, with GDP growth moderating from 9.2 percent in 2011 to 7.9 percent in 2012. This forecast is based on the central case scenario for the world economy, which assumes the eurozone will only have a mild recession in 2012, with eurozone GDP declining by 0.7 percent, while the United States is forecast to have positive growth of +2.0 percent.
A number of factors are expected to support the resilience of Chinese economic growth in 2012.
First, although Chinese exports to the EU are clearly slowing rapidly, overall Chinese export growth is still positive. In December 2011, Chinese exports were up 13.4 percent on a year ago, despite weaker EU orders, since the U.S. market has remained stable while exports to the rest of Asia and other emerging markets has continued to grow strongly.
Second, domestic demand measures still show considerable momentum, with December industrial production up 12.8 percent on a year ago, while nominal retail sales were up 18.1 percent on a year earlier.
Photo Credit: Flickr / Peter
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Sara
Hell yes, i want use the shut up sitnmhoeg discernment this but didnt have time, may i repost this CRI: Research Report on Chinese consistent with nature Rubber Industry, 2011-2012
Liang1a
Quote from the article:
A key risk comes from imbalances in the structure of the economy, which has been excessively reliant on exports and investment as growth engines over the last three decades. This has created a lopsided economy in which private consumption only accounts for one third of GDP, a very low share by international standards. This heavy reliance on the export growth engine makes China vulnerable to external shocks.
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Liang’s comment:
Excessive reliance on exports is indeed the fundamental problem of China’s economic development. China cannot export more than $2 trillion of anything whether low tech labor intensive products or high tech capital intensive products. This is due to the limits of the other countries’ ability to import Chinese goods. Therefore, in order to keep growing China must develop its domestic economy to provide more goods and services to its own consumers. This in turn means China must make the Chinese people more productive so that they can earn higher incomes commensurate with their increased productivity. Otherwise, increasing incomes by government mandate without increasing productivity will only push up inflation. Also the farmers or rural residents must be urbanized so that they can become productive in the manufacturing and service industries. Also China must become energy self-sufficient. China simply cannot spend trillions of dollars to import foreign oil. Therefore, China must increase its domestic production of electricity using nuclear, wind, solar, hydro, coal, and other means of electric power generatoin while using electric cars using either batteries or fuel cells. This is the way to keep the Chinese economy growing.
Therefore, China should stop subsidizing exports, ban FDI, while increasing subsidizeing renewable energy industries, electric car, urbanization, etc. China should also build affordable housing (which it is doing), build more world class universities, build more hospitals and medical schools, expand medical supplies industries (produce more MRI machines, dialysis machines, etc), increase funding for military (up to 3% of GDP), etc. Once the Chinese can produce all the goods and services the Chinese people need, then they don’t need to export anything to provide full employment to all the Chinese people. And Chinese economy will be fully isolated from the recessions of the outside world.
China can achieve the most advanced technologies in the world in all technological sectors because it can educate millions of world class scientists and engineers. China also has more mineral resources than any other countries in the world. China can easily be energy and food self-sufficient. Therefore, China can be 99% self-sufficient while achieving the highest standard of living in the world. Relying on exports, especially low tech labor intensive exports, will only keep Chinese people unproductive and poor. But relying on domestic development and making the Chinese people the most productive in the world will make the Chinese people the richest in the world. If the Chinese people can use the same tools and machines as the Americans, then their productivity will be the same as the Americans and deserve incomes as high as the Americans. On the average I think the Chinese can achieve even higher productivity and incomes than the Americans because 1/3 or more of the Americans are blacks and Latinos who are producing only 2/3 or less of the white Americans. Therefore, the Chinese can achieve some $66,000 of per capita GDP (2011 PPP). Therefore, by 2040 and a population of 1.5 billion, China can achieve a total GDP or GNP of $100 trillion (2011 PPP) or more. And the Chinese economy will be as big as 150% of the rest of the world combined.