RMB appreciation poses a challenge to Chinese exports
Updated: 2008-03-10 10:23
Silver lining
While most economists warn the possible global economic slowdown will deal a heavy blow to the Chinese economy, some are not that pessimistic. As the US economy slows down and American consumers become reluctant to spend, they are more likely to shift to cheaper Chinese products, they say, which will boost Chinese exports.
Domestic consumption would provide an anchor for stable economic growth this year, says Dong Yuping, economist with the Institute of Finance and Banking at the Chinese Academy of Social Sciences.
China's annualized retail sales increased 16.8 percent last year, the fastest since 1997. Consumption for the first time contributed more than investment to GDP growth.
"China's consumption structure is updating, with more high-end products becoming popular," Dong says. "The momentum of consumption growth is fairly good and in the next five or 10 years, may continue to outpace investment in contribution to GDP growth."
The impact of the international economic turbulence also may not be that severe, say some analysts.
"The global economy is becoming more closely interconnected, and the US, Europe and Japan may join forces to combat recession," says Dong. "This may prove effective."
On the other hand, the US accounts for less than 20 percent of China's exports, thus the impact of US slowdown on Chinese economy may not be huge, says Fan Gang, member of the monetary policy committee of the central bank. "If the Asian economy and the oil-exporting economies - which account for about 50 percent of China's foreign demand - perform well, China's overall foreign demand would not change much."
Moreover, the Chinese economy is still in the industrialization and urbanization cycle, which provides strong growth incentives, says Dong. Further modernization will require major infrastructure and other development projects, such as the 200 billion yuan Beijing-Shanghai high-speed railway. Projects such as these will create heavy investment, says Dong, keeping the economy on the tracks.
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