China’s Economic Growth Under Pressure but Will Serve as Motor for Global Recovery

ESCAP’s annual survey analyses region’s challenges, proposes solutions

Bangkok (UN/ESCAP Information Services) – Although China has posted the strongest growth of all major world economies in 2008, its growth has slowed to its lowest level since 2002 – falling from 13 per cent in 2007 to an estimated nine per cent in 2008 – and, in a continuing decline, growth is forecast to reach 7.5 per cent in 2009.

The decline in China’s economic growth began with a drop in domestic investment in its real estate sector, but the main impact came in late 2008 as developed countries drastically reduced consumption, leading to a slowdown in Chinese exports, according to the Economic and Social Survey of Asia and the Pacific 2009. Consumption in China is expected to be affected by the slowdown in growth, with job losses particularly in enterprises connected to export and real estate.

The flagship publication of the United Nations’ regional arm – the Economic and Social Commission for Asia and the Pacific (ESCAP) – this year’s issue is titled "Addressing Triple Threats to Development.” It analyzes the three global crises which have converged to threaten development in the Asia-Pacific region: the financial crisis, fuel and food prices, and climate change. The Survey provides a regional perspective as well as country-specific analyses, outlining ways in which economies in the region can move forward in unison towards a more inclusive and sustainable development path.

The Survey highlights the fact that due primarily to the performance of China, as well as India, aggregate growth in Asia and the Pacific will remain higher than in other global regions, helping to make the Asia-Pacific region the locus of global growth in 2009.

While China’s export performance held up reasonably well in the initial months of the slowdown, it is now feeling the full brunt of the global recession. By November 2008, there was a 2.2 per cent contraction in exports compared to the previous year – the first monthly fall in almost seven years. By January 2009, the contraction had reached 17.5 per cent, compared to the previous year. The Survey notes that the decrease in imports, from 21.3 per cent in December 2008 compared to the previous year to 43.1 per cent in January 2009 compared to the previous year, may reflect additional downturns in future export performance.

China saw a rapid slowdown in inflation in the latter part of 2008, but overall inflation was still greater then 2007 at 5.9 per cent. Consumer price growth slowed in tandem with the general domestic slowdown, while prices of domestically produced goods dropped due to greater competition in the face of curtailed demand and high supply.

In 2009, China is expected to see the benefits of the unprecedented fiscal policy package – the largest in the world as a percentage of gross domestic product – of four trillion yuan ($584 billion), announced in November 2008. The Survey points out that while such supportive measures by governments across the region can help stabilize economies to ride out the economic downturn, it will become increasingly difficult to keep these kinds of spending policies in place over the long term. China is, however, in a comparatively better position than many other countries in the Asia-Pacific region, with a positive fiscal balance in 2008 and public debt below 20 per cent – one of the lowest in the region.

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The Economic and Social Survey of Asia and the Pacific 2009 is available online from 0500 GMT/1200 Bangkok on 26 March at: http://www.unescap.org/survey2009/index.asp

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