Thursday, January 21, 2010

China’s Economy Growth in the Fourth Quarter of 2009

China released a batch of economic data last evening. In effect, China declared that the economic crisis is over for the country. Economic growth accelerated to a 10.7 percent rate in the final quarter of 2009. This accelerated growth pushed the overall growth rate for China’s gross domestic product (GDP) for 2009 to 8.7 percent. This keeps the country on course to replace Japan sometime later this year as the world’s second largest economy.

China was one of the healthiest economies heading into the financial crisis, so it should come as no surprise that it is among the first economies to achieve recovery and stabilization. China’s economic recovery was aided by the government’s $586 stimulus plan which pumped money into the economy through tax cuts, subsidies to consumers, aid to industry and public infrastructure. Consumer spending has definitely been aided by the stimulus – retail sales for December rose by 17.5 percent and retail sales for all of 2009 are up in excess of 15 percent.

There is one note of caution from the Chinese economic data. Inflation picked up, driven by a jump in food costs and other items amid a torrent of bank lending. The Chinese government has indicated that it will shift its focus to controlling inflation and limiting bank lending. China’s government is worried that reckless lending has fueled overinvestment in some industries such as steel and cement and has inflated stock and real estate prices.

This has sparked concerns that China’s economic growth may slow somewhat and limit the country’s contribution to worldwide economic growth. In 2009, China was the engine that drove economic growth globally. A solid Chinese economy will help drive a global rebound by boosting demand for all sorts of commodities and consumer goods. Here is a figure that Wall Street, which only looks at Chinese exports, ignores – in the period from January to October 2009, China was the world’s second biggest importer, with imports of $797 billion. The entire world is now hoping China’s economy keeps powering ahead strongly.

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