China Watch Blog

China Watch Blog has learnt that China is confirmed to have overtaken Japan as the world’s second-largest economy, trailing only the United States, according to a Shanghai Daily report.

The report says that according to data released yesterday by the Japanese Cabinet Office, Japan’s nominal gross domestic product (GDP) for the second quarter totaled US$1.288 trillion, less than China’s US$1.337 trillion.

Despite the milestone, Chinese officials said the nation still remains a developing country, with a per-capita gross domestic product that lags far below that of advanced nations.

According to the World Bank, China’s per-capita GDP was a bit more than US$3,600 in 2009, ranking 124th worldwide. Japan’s per-capita GDP, in contrast, amounted to over US$39,000.

Japan remained a bigger economy than China in the first half of 2010. China’s economy expanded 11.1 percent from a year earlier to 17.28 trillion yuan (US$2.55 trillion) in the first six months, compared with Japan’s US$2.57 trillion.

However, the dynamics of development indicate that Japan is unlikely to retain its position as the world’s second-biggest economy for the full year.

Transport logistics professional please take note.

China Watch Blog has picked up this news that the Mainland China economy continued to slow in July as industrial production, retail sales and fixed-asset investment eased.

The deceleration in the world’s second largest economy came as a flood-related jump in food prices fuelled consumer inflation to its fastest pace in more than a year.

Economists said the effect of stimulus measures was fading and the slowdown reflected government curbs on property market speculation and polluting, energy intensive industries.

Industrial production growth slowed to 13.4% in July from 13.7% in June. That was the slowest since the 12.3% year on year growth registered last August, according to data released by the National Bureau of Statistics.

Urban fixed-asset investment in the January-July period rose 24.9% from a year earlier, down from the 25.5% rise in the January-June period. Growth of retail sales slowed to 17.9% from 18.3% in June.

But analysts feel that despite the economic slowdown, the Mainland economy will now be more sustainable.

China Watch Blog has learnt that China’s economy should stay on its rapid growth path over the next two or three decades as long as the pace of growth stays at a steady 8 percent a year, former central bank adviser Fan Gang was quoted as saying Wednesday.

“China’s economy is likely to continue growing rapidly over the next 20 to 30 years if the pace of growth stays at 8 percent and with 8 million of new jogs every year,” the Security Times cited Fan Gang, director of China’s National Economic Research Institute.

The country’s GDP grew by 11.1 percent in the first half of the year, while the figure for the second quarter of this year was 10.3 percent.

China Watch Blog has picked up this news that the International Monetary Fund reported on July 27 that China’s economy is expected to maintain strong growth and its recovery has “significant positive spillovers” to the region and the world economy as a whole.

According to a People’s Daily report, the authorities’ quick, determined and effective policy responses helped mitigate the impact on the economy and ensured that China played a leading role in the global recovery.

China Watch Blog has learnt that Albert Keidel, a famous economist specializing in China, was quoted by People’s Daily as saying that China had “nothing to do with the global economic recession.”

Keidel, a non-resident senior fellow at the Atlantic Council and a professor at the Public Policy Research Institute of Georgetown University,  has a long list of titles including former vice-director of the East-Asia Office of the U.S. Department of the Treasury and the chief economist of the World Bank representative office in China.

Keidel said that China implemented effective economic stimulus policies to increase market demand, especially export demand. Compared to when the economic crisis broke out, China’s trade surplus has shrunk remarkably. Keidel said, “China has stimulated the world economy.”

In Keidel’s opinion, China stimulated the world economy in many ways. First, China has reformed the exchange rate formation mechanism since 2005. Based on market supply and demand, China adopted the floating exchange rate system to regulate and manage the exchange rate. Since the summer of 2008, China stabilized its RMB exchange rate against the U.S. dollar, making great contribution to the stability of international markets.

Hooray for China…

China All-Day Economy Watch Blog has reported that Chinese premier Wen Jiabao warned that China faces tough choices in moderating economic growth and must avoid piling on adjustment policies and risking negative consequences.

His remarks, reported by Xinhua and Reuters, during a recent visit to Tianjin, did not suggest any policy shift, but underscored that policymakers want to move carefully and avoid overstepping in efforts to temper inflation with signs that growth is slowing.

“At present the national economy continues to improve, but domestic and external conditions remain extremely complex, and macro adjustment faces many dilemmas,” Wen was quoted as saying by the report published in the Sunday Morning Post.

“Pay attention to co-ordination in macroeconomic policy, so that it forms into a cohesive overall force and also prevent negative consequences from multiple overlapping policies,” Wen told officials in Tianjin, Xinhua said.

The mainland’s gross domestic product (GDP) expanded 8.7% in 2009, thanks to massive monetary and fiscal stimulus, and most economists say growth in 2010 will top that figure, after Q1 year on year growth of 11.9%.

But the government is worried about inflationary pressures and roaring real estate price rises and has been seeking to temper those pressures, so far without clear effects.

Annual inflation pushed up to an 18-month high in April, when consumer prices rose 2.8% on a year earlier.

The Asian Development Bank has forecasted that China’s economy will grow 9.6% in 2010, while predicting a moderate lift in the value of the currency, the yuan. The Manila-based ADB raised China’s growth rate from its previous estimate of 8.9% growth for 2010, done in September. However, the bank said China’s economy is likely to rise at 9.1% in 2011 as Beijing is prepared to phase out its huge stimulus measures introduced in late 2008 to stark off the global financial crisis. China has powered out of the downturn — it grew 10.7% in the fourth quarter of 2009 — on the back of US$585b in stimulus spending and massive bank lending. China’s next five-year plan, an economic blueprint set to be unveiled in 2011, was an opportunity for Beijing to “add momentum to restructuring efforts” necessary to ensure sustained growth in the years ahead, the ADB said. Expanding the services sector — such as banking and insurance — would “strengthen the domestic engine of growth, generate new sources of employment and raise living standards”, the bank said. It also said that it is China’s own interest to let the yuan resume appreciation, a process that was halted by the financial crisis. “Now as the global economy picks up it would be… in China’s interests but also in the interests of the economies in the region to gradually shift towards greater exchange rate flexibility,” ADB country director Robert Wihtol told reporters. The bank said in its outlook report that China may “tolerate” a slight increase in the yuan in 2010 and 2011 amid sustained economic growth, revived inflation and a trade surplus. Speculation is growing that Beijing may soon alter its exchange rate policy as international moves intensified for a stronger yuan — effectively pegged at around 6.82 to the dollar since mid-2008.