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Qin Xiao Nyse Post Crisis Chinese Economy
1. Observation and Perception of China’s Economy in the Post-crisis Period — Policy Options and Recovery Management Dr. Qin Xiao Chairman, China Merchants Group and China Merchants Bank
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5. China’s Economy Entered Post-crisis Period Short Term Mid-Long Term China faces the coexistence of deflation threat due to insufficient end demand and excess capacity, and the inflation expectation and asset price bubble driven by excess liquidity The imbalance of China’s economic growth has not been adjusted but deteriorated . Short and Mid-Long Term Challenges China’s CPI and PPI China’s Asset Price: Housing Price Data Source: NBS, China Merchants Securities
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7. Policy Focus: Enhancing Recovery China’s statistical system should be improved to avoid misinterpretation of the economy, and to better support policy making China’s growth depends too much on investment and export, however, current statistical system underestimates consumption while overestimate investment GDP by Expenditure Method Alternative Indicators of output method Alternative Indicators Differ from Expenditure Method Domestic Consumption (including Household and Government) Total Retail Sales of Consumer Goods Household services consumption (education, health care, self-owned housing, culture and entertainment and etc.) not included Gross Capital Formation (including Gross Fixed Asset Formation and Inventory Changes) Total Fixed Asset Investment Purchase of land and, old buildings and old equipment included; Inventory changes not included; Net Export of Goods and Services Trade Balance Trade in services not included
China has been the first major economy to enter the post-crisis period. Its economy has experiencing a V-shaped recover y since 4Q09, and the a nnual GDP grow th is very like ly to surpass 8. 5 % in 2009 . The V-shaped recovery is mostly driven by Fixed Asset Investment, and backed up by enormous credit growth. The fixed asset investment, credit expansion and money supply all grew at about 30%. Last year, investment has contributed over 6 percentage points to the 8.5% growth rate, and consumption contributed about 4 percentage points, while net exports negatively contributed about 2 percentage points.
However, economic fundamentals were not so bright-shining as the macro data indicates. Domestic consumptions, private Capex, exports and job creation are still weak. There are possible policy overshooting, and the recovery comes at a cost.
First, in short term China faces a unique coexistence of deflation threat due to the decline of the external demand and overcapacity, and the inflation threat due to China’s rapid money supply growth. Second, in the mid-to-long term, the global imbalance has not yet been corrected, and China’s imbalanced economic growth model has been further deteriorated.
Therefore, China’s macro policy, firstly, should shift from anti-crisis measures to enhancing the fundamentals and stabilizing the recovery To this end, we should monitor very closely to a set of macro indicators in order to correctly understand the economic performance
However, China’s statistical system does not provide those data. People focus too much on a single indicators, the headline GDP, and sometimes even experts misinterpreted the direction of the real economy We admit China’s growth depends too much on investment and export, however, current statistical system underestimates consumption while overestimate investments It is my belief that China must reform its statistical system to avoid misinterpretation of the economy and to better support policy making
It’s too early to judge the success if China has not a well designed exit strategy and unable to exit from its loose monetary policy properly. That is a tough testing for Chinese government’s ability to deal with economic recovery. The 2010 will be the year of governments' exits. China’s economic recovery is in the lead for six months compared with the global economy, therefore, the Chinese government is expected to exit earlier than other major economies. It is very unlikely that heavy injection of money can be curbed in the coming two years. Meanwhile, asset prices soared, hot money floods in and RMB is again under pressure for appreciation. At the end of the day this will result in a sudden exit of policies when it is impossible to further delay. That is worrisome since policies should manage the market expectations, rather than simply wait until it’s too late.
I work out a possible roadmap of exit strategy, and basically regulatory measures would go first, and then interest rate hike in the middle of the year and the RMB appreciation restart during the second half of this year
The market capitalization of public traded state owned stocks now have reached over 8 trillion RMB, or 1.2 trillion USD, which could be distributed to average people
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