Chinese President Hu Jintao said a slowdown in exports is putting downward pressure on the world’s second-biggest economy, and he pledged to boost domestic demand and promote more balanced growth.
“Economic growth is facing notable downward pressure, some small and medium enterprises are facing a hard time and exporters are facing more difficulties,” Hu said yesterday at the Asia-Pacific Economic Cooperation CEO Summit in Vladivostok, Russia. “We have an arduous task of creating jobs for new entrants to the labor force.”
The slowdown is increasing pressure on Hu as China tries to ensure a smooth once-a-decade transition of power to a new generation of leaders at a Communist Party Congress this year. Europe’s debt crisis and anemic U.S. growth may hinder a rebound in exports while at home a slump in earnings is deterring companies from spending and banks face rising bad debts.
“The Chinese government has been trying to reduce the share of investments as a share of GDP and in the meantime accelerate private consumption,” Jing Ulrich, Hong Kong-based chairman of global markets for China at JPMorgan Chase & Co., said in an interview in Vladivostok. “But here comes more stimulus, mainly targeted at fiscal spending and infrastructure. What does this mean for the rebalancing of the overall growth drivers for the economy?”
Asia’s biggest economy expanded 7.6 percent in the second quarter from a year earlier, the slowest pace in three years, after the government moved to counter inflation and surging property prices in the wake of a 2009 stimulus. Exports in July rose 1 percent from a year earlier and shipments in the first seven months rose 7.8 percent, compared with a 23.4 percent rise in the same period in 2011.
UBS AG and ING Groep NV cut their full-year forecasts on Sept. 7 for economic expansion to 7.5 percent, which would be the slowest pace in 22 years.
“They’ve screamed from the rooftops for three years they are trying to slow things down to kill inflation and to kill the property bubble,” Jim Rogers, chairman of Singapore-based Rogers Holdings, said in a Sept. 7 interview in Vladivostok. “Now it’s happened.”
The deceleration in China’s economic growth will probably extend into a seventh quarter, with ING estimating a slowdown to 7.1 percent and Bank of America Corp. projecting 7.4 percent for the three months ending September.
Data due today may show industrial output growth slowed to 9 percent in August from a year earlier, the slowest pace this year, according to the median estimate in a Bloomberg News survey of 35 economists. Exports last month probably rose 2.9 percent from a year earlier, according to a separate survey before a Sept. 10 report. Overseas shipments climbed 24.5 percent in August last year.
The government is expected to announce a package of measures to support exports this month, the China Daily reported yesterday, citing two unnamed sources from the Ministry of Commerce. Trade figures for August “are not positive and not encouraging,” the paper cited the sources as saying.
In his speech yesterday, Hu said China’s economy was characterized by a “lack of balance, coordination and sustainability” and that the country would promote “inclusive growth” to improve people’s lives. Hu and Canadian Prime Minister Stephen Harper signed an agreement today to protect foreign investors in their respective countries, a deal that Harper said would “create jobs and economic growth in Canada.”
China’s Gini coefficient, a measure of inequality, has risen more than any other Asian economy in the last two decades, Murtaza Syed, the International Monetary Fund’s resident representative in Beijing, said in February. The government hasn’t released an overall Gini figure since 2000 although Bo Xilai, the ousted former Communist Party secretary of Chongqing, said in March it had exceeded 0.46, above the point that triggers social unrest.
“The route we’ve taken is to allow a portion of the population to grow wealthy before everyone else,” China Construction Bank Corp. Chairman Wang Hongzhang said in a panel discussion at the APEC summit yesterday. “By 2050 we hope to have a society where a large part of the population can share in that equitably.”
Hu’s standing with international investors has suffered ahead of the leadership change later this year. In a quarterly Bloomberg Global Poll published Sept. 7, two in five voiced pessimism about the impact of his policies on the investment climate in China. That’s up from less than one in three in May and is the highest negative reading since the poll began asking that question two years ago.
China on Sept. 5 and 6 announced approvals for infrastructure spending to support growth as Europe’s debt crisis crimps exports and a property crackdown damps domestic demand. The National Development & Reform Commission, the top planning agency, gave the go-ahead for construction of 2,018 kilometers (1,254 miles) of roads and subway projects in 18 cities. Nomura Holdings Inc. estimated the total value of projects approved at about 1 trillion yuan ($158 billion).
Chinese shares surged on the news, with the benchmark Shanghai Composite Index closing 3.7 percent higher on Sept. 7, the biggest advance since Jan. 17.
By focusing on infrastructure to boost growth, Hu and Premier Wen Jiabao may risk exacerbating the imbalances they have pledged to combat.
Spending on roads, bridges, subways and other public-works projects surged in 2009 and 2010 as much of a 4 trillion yuan stimulus, and an unprecedented expansion in bank lending, was directed toward local government projects. That led to a rise in debt at the local level to at least 10.7 trillion yuan as of 2010, according to an official audit.
“The unintended consequences of this are legion,” Tim Condon, chief Asia economist at ING in Singapore, wrote in a Sept. 7 note, referring to the infrastructure spending. “They include corruption scandals -- for example, the railways minister was sacked and expelled from the Party over corruption charges -- poor quality construction -- the collapse of a section of the Yangmingtan bridge in Harbin city is emblematic - - and stretched local government finances.”
Ma Kai, a State Councilor and general secretary of the State Council, China’s Cabinet that’s headed by Premier Wen Jiabao, said yesterday that the nation’s economic growth is sustainable and has “great potential.”
“We will turn the huge potential demand of 1.3 billion residents into real demand,” he said at an international investment forum in the eastern city of Xiamen. “I believe the unprecedentedly large and rapidly growing China market will bring more opportunities to foreign investors.”
— With assistance by Michael Forsythe