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China's engines of growth

(China Daily)
Updated: 2009-08-24 08:00

An expenditure of 400 billion yuan is expected in the second half. The buoyant pace of infrastructure expansion is in turn supporting FAI in manufacturing, particularly in the materials and specialized equipment industries.

Heavy spending on infrastructure will continue in coming months, since a significant amount of the record new loans created in the first half of 2009 has yet to be deployed.

Competing to lend to government-backed infrastructure projects, banks have front-loaded loans prior to project starts.

Despite some policy adjustments to curb excessive demand, we expect the government to remain supportive of the housing market recovery, given the importance of private investment to China's economic growth. Real estate investments accounted for 22.2 percent of FAI in the first six months of the year.

With property transactions recovering in the first half and property prices returning to positive year-on-year growth, the China Banking Regulatory Commission has urged banks to strictly follow criteria for granting second home mortgages.

According to the NDRC, new home prices in 36 Chinese cities rose 6.3 percent year-on-year in June.

Banks in some cities have started tightening mortgage-lending terms for second homes, enforcing a policy that requires a minimum down payment of 40 percent and an interest rate 10 percent above the base-lending rate.

However, even with stricter mortgage policies in some cities, land prices in the first two weeks of August surpassed levels last seen in 2007. Strong sales and reduced inventory have prompted developers to ramp up the pace of construction and replenish their land banks.

Q: Will exports continue to fall in coming months?

A: China's exports contracted by 23 percent year-on-year in July, from negative 21.4 percent in June. Imports fell by 15 percent year-on-year in July, compared to negative 13.2 percent in June. China's monthly trade surplus expanded to $10.6 billion, up from $8.25 billion in June.

The softness in external demand has resulted in a greater reliance on investments as a driver of China's economic growth.

According to the National Bureau of Statistics, real GDP growth was up 7.1 percent in the first half of 2009, with gross capital formation contributing 6.2 percentage points, consumption 3.8 percentage points and net exports negative 2.9 percentage points.

The forward-looking "new export orders" components of China's manufacturing PMI series indicate initial recovery in export demand.

Related readings:  A tale of two countries' economic growth and recovery  China's export to resume growth in Q4: institutional forecasts  GDP growth not at cost of public health  China heads for 8% growth target

The official NBS-PMI registered new export orders of 52.1 in July, the third consecutive month of expansion. The CLSA-PMI registered new export orders of 50.2 in July, the second consecutive month of expansion.

Improving economic activity has yet to translate into a convincing recovery in China's container traffic. Throughput performance at major ports was somewhat mixed in July, with Shanghai showing improvement and Shenzhen remaining weak.

Container throughput at Shanghai declined 9 percent year-on-year in July and increased 7 percent month-on-month. Shenzhen declined 23 percent year-on-year in July and increased 4 percent month-on-month (seasonally adjusted).

The provincial trade bureau of Guangdong province, home to many of China's export manufacturers, recently announced that exports from the region were showing signs of recovery. While provincial officials expect year-on-year declines in the third quarter of 2009, they expect to see export growth in the fourth quarter of 2009.

Recent improvements in China's port throughput data have reflected increasing imports of bulk commodities. According to earlier Ministry of Transport data, imports of iron ore continued at a robust pace in July to reach 56.5 million tons, which is a 35 percent year-on-year increase (or a 2.2 percent rise from a month earlier).

This represents the second-highest monthly level and indicates strong demand from Chinese steel mills, as they benefit from the revival in downstream industries ranging from infrastructure and property to automobiles and appliances.

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