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Time to assess early effects of stimulus

By Zhu Qiwen (China Daily)
Updated: 2009-07-13 07:42

The encouraging monthly figures of credit expansion, car sales and trade, all indicate that China's GDP growth in the first six months of 2009 may exceed expectations.

Chinese policymakers should not yet take a solid recovery for granted because there is more to the statistics than meets the eye. When assessing the initial results of the country's stimulus measures, they must combine the need for long-term reforms with the urgency of fighting the worst global recession in many decades.

As one of the most effective leading indicators of economic activity, the re-acceleration of credit growth in this country has practically confirmed the leading role that massive investment will continue to play in boosting economic growth.

China's new lending jumped from about 600 billion yuan a month in April and May to 1.53 trillion yuan ($224 billion) last month, bringing the total lending this year to 7.4 trillion yuan in spite of the central government's initial full-year target of no less than 5 trillion yuan. The seemingly unstoppable credit expansion means that the country's fixed asset investment would be well funded to propel a strong rebound.

The soaring car sales since the beginning of this year has surprised carmakers while testifying to the huge potential of the domestic consumer market.

When car sales plummeted in the most parts of the world as expected amid a global recession, Chinese consumers bought 1.14 million new automobiles in June, up 36 percent over the same month last year - the fourth month in a row surpassing the 1.1 million units mark.

Such strong car sales - which have made China the world's largest auto market so far this year - will not only galvanize carmakers to expand production for fuelling industrial growth but also persuade policymakers to come up with more pro-consumer incentives as the announced tax breaks on small cars and subsidies for vehicle purchases in rural areas.

Besides, good news also comes from the battered trade sector, though in the disguise of still negative year-on-year growth.

China's exports fell by 21.4 in June year-on-year after dropping 26.4 percent in May while import declined by 13.2 percent, a much smaller drop than the 25.2 percent slump in the previous month.

As a rising global manufacturing power, China's heavy dependence on export for economic growth over the past decades has particularly worried Chinese policymakers that the global recession might suddenly turn this robust growth engine into a big drag on the national economy.

But now, the reduced fall in exports and imports is signaling a fresh sign of recovery. In fact, the smallest decline of imports last month since last November provides a cause for optimism.

As a leading indicator of exports related to processing and assembly trade, the smaller-than-expected import decline suggests that China's exports will accelerate in the coming months.

All these reassuring economic indicators point to a rosy picture of growth to which people will find more clues in the second quarter GDP statistics to be announced by the government later this week.

In the meantime, Chinese policymakers have to examine the performance of all aspects of the economy to determine if the current stimulus measures need further adjustment.

It was reported that, while recognizing positive signs of a strong rebound, Premier Wen Jiabao recently stressed that the government will stick to its pro-active fiscal policy and moderately loose monetary policy as the impact of the international financial crisis hasn't eased and the foundations for an economic rebound are not solid.

Such a prudent approach to assess and adjust the stimulus package is crucial to China's eventual success in weathering the global financial and economic turmoil.