China Economy Greenlights the Money Pump Again
It’s full speed ahead as China races towards the end of the year with its foot on the economic gas pedal. Unable to rely on United States consumers to revive exports, China continues to stimulate its own economy more than any developed nation.
A number of experts have warned about economic bubbles developing, especially in the real estate market, as the Beijing continues to flood the economy with liquidity. But Chinese leaders signaled over the weekend that they will continue to stimulate the economy as much as possible.
President Hu Jintao declared, “Ensuring and improving the people’s livelihood as well as the mission of maintaining a stable society are arduous tasks as we face the impact of the global economic crisis.” Hu was speaking at an event leading up to the 60th anniversary of communist party power in China.
China’s gross domestic product registered 7.9 percent growth in the second quarter of 2009. That’s up from 6.1 percent in the first three months of the year and it appears that the GDP trend line will continue to rise as the government primes the financial pump.
China’s $586 billion stimulus plan, announced in November of last year, runs through 2010 and it appears that the money pump will continue to be wide open well into next year. In addition to the direct stimulus, a flood of government-mandated bank lending has amplified China’s government cash infusion.
Investors should keep in mind that America may be emerging from its recession, but recovery on this side of the Pacific will likely remain anemic. Washington still doesn’t have the resources to inject economic stimulus without adding to the critical debt situation. Banks continue to maintain a tight-fisted policy toward new loans despite easy-money policies in Washington. And, unlike Beijing, Washington cannot command banks to open the floodgates and start lending again.
Ensuring stable growth is China’s top priority because global economic recovery is expected to be slow, according to a recent broadcast from China National Radio. The official radio outlet declared, “The country is in the “critical phase” of ensuring economic growth.” That’s another clear signal that Beijing will keep the money spigots wide open to maintain growth internally.
Asset price bubbles are a major worry to economists like the much-quoted Any Xie, formerly of Morgan Stanley. Xie recently told AFP. “The average urban property price per square meter is the same as in the US, while the US per capita income is seven times that of China’s urban per capita income.”
Indeed, real estate prices may level off in major cities as property prices rise above the ability of many residents in first-tier cities to pay. But growth is still achievable in second and third tier cities, and China has many, many of those.
Property sales were up 53% in the first six months of 2009. Chinese commercial real estate recorded more sales than the US and UK markets combined. And, in another indicator of consumer confidence, auto sales continue to surge, with nationwide sales expected to soar as high as twelve million units this year according to Chinese industry leader, General Motors.
Committed to Your Profits in China,
Jim Trippon
Editor-In-Chief
China Stock Digest
