Prospects for the Chinese economy EU Trade Commissioners Shanghai December 16, 2008 Mary Boyd Director, Shanghai Corporate Network Economist Intelligence Unit

US: 2009 slower than 2008 Contributions to US qoq growth; percentage points. GDP growth is % change qoq, annualised.

China: reality starts to bite Slower exports Credit squeeze Labour issues Inflation worries so… Easing the brakes Buying one’s way out of trouble

China: 2008/9—lower growth, high risks GDP growth of 9.8% in 2008 (11.9% in 2007) 7.5% in 2009 Spillover effect from global recession Global credit contraction, China’s credit quota Inflation = 6.4% yearly forecast Fiscal burden Natural disasters

Cooling measures: stable macroeconomic deceleration was Beijing’s goal - but it is now going for growth reduce investment in overheated sectors stimulate domestic consumption levels use fiscal transfers, fixed asset investments to redress balance between rich and poor areas (policy) …while managing economic transition and maintaining stability Olympic year Industrial upgrade Global downgrade

Exports sputter, and there’s worse to come 8.3% 17.5% 20.6% China’s H1 exports by destination 13.6% Real GDP growth EU US Japan

Major headaches Collapsing stock market Knock-on effect of world financial turmoil Will consumer spending hold up?

China ¥ = US $ slower US growth will have selective impact on China rate of RMB appreciation has picked up, to 9.7% in ¥6.42:US$1 by end-2010 but still no one-off move

Power shortages Masses of new generating capacity Pricing policies a major factor in shortages 2002 = 824 kg. oil per head 2008 = 1,405 kg. oil per head 2002 = 1,271 kwh per head 2008 = 2,471 kwh per head

Wage pressures Pro-union push by ACFTU Embryonic “collective bargaining” More litigious work force Demographic pressures Importing of cheaper labour

EHS outlook: old problems, new protocols New inspection protocols, confidence- building measures Major trading partners enlisted for new (harmonized) standards

The agribusiness approach Land tenure issues, rural livelihoods Food safety concerns Food security concerns

Real estate market factors Fallout in local property markets, transactions and prices are down Consolidation in property sector Local municipalities try to keep their markets afloat Relief for mortgage holders?

A housing bubble?

Labour unrest Taxi strikes Skills shortages Paying the price of industrial upgrades Moving back home

No more fast lane

Government to the rescue Export rebate tax adjustments Credit relaxed for SMEs Stimulus package …But watch the 3 Rs: Regulations, Raw materials, Renminbi

The stimulus package?

The rise of the welfare state should underpin greater consumption The 17 th CCP Congress: “Harmonious society” policies take effect Education Health Poverty stipends Subsidized housing Rapid growth of 2 nd and 3 rd tier cities and beyond But saving culture unlikely to be lost overnight

Global reliance on Chinese consumers Asset bubble had fed conspicuous consumption Will buying habits persist in hard times?

Empty lots

On-line consumption

Consumer resilience?

Asset shifting

Rural markets on the move “ 万村千乡市场工程 ” rural retail policy push Revolution in rural finance Hypermarkets, supermarkets, mini markets, convenience stores, gas stations expand the rural footprint

Thank you! 谢谢 Mary Boyd Director, Shanghai Corporate Network Economist Intelligence Unit