Research Dept. News
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Monthly Report, num 354 - February 2012
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International review - China
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China: towards a soft landing
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China is slowing up, growing by 8.9% in the fourth quarter.
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China is underpinning its soft landing with 8.9% growth year-on-year in GDP for the fourth quarter, so that the economy will have grown by 9.2% for the whole of 2011. This rate should fall in 2012 down to 8.4% for the whole of the year, a rate that, although high in comparison with all advanced economies, is close to the limit of 8% which, according to the Chinese government, guarantees stability and peace in society. That's why the authorities' top priority is to ensure growth.
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Inflation moderates to 4.1% but food prices rise by 9.1%.
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Controlling inflation, which had been the main aim up to September, has been relegated to second place. December's CPI rose by 4.1% year-on-year, almost the same as last November and far from July's figure of 6.5%. However, this does not mean that inflationary pressure has been averted. The price of labour continues to rise due to the social changes occurring in the country and the CPI for food, which accounts for half of the general index in China, picked up slightly to 9.1%. Nonetheless, December's figures leave room for expansionary policies.
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The brusque halt in housing is the biggest risk to the main scenario of a soft landing.
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The main scenario is one of a soft landing supported by the underlying trends in China's economy. But the risks tilt downwards, with a brusque halt for two of the pillars to growth over the last few years: housing and exports. The housing sector, which accounts for 13.0% of the total economy, is at a standstill. Prices have stopped rising and falls have been posted in significant zones such as Whenzhou, in the dynamic province of Zhejiang. Land under construction has fallen by 25% and December's sales were down 8.4% year-on-year, when in the third quarter they had grown by 12.9%. The positive side to this lies in the fact that lower inflation will allow monetary policies to stimulate the sector, such as reducing the cash reserve ratio. Meanwhile the exodus from rural areas continues. In December, the urban population exceeded the rural population for the first time in China's history. This movement also supposes a strong source of demand that should help to bolster the sector.
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The foreign sector continues to lose steam but metal imports grow.
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For its part, the foreign sector continues to decline. December's trade balance totalled 16.5 billion dollars, somewhat higher than the figure for November but without changing its downward trend. Exports grew by 13.4% year-on-year, a very low rate for the Chinese economy. In the case of imports, the signs of a slowdown are more ambiguous. Although year-on-year growth was 11.2%, within a lower range, this was partly due to strong base effects. Basic metal imports such as copper, which in China is an indicator of industrial activity, were definitely on the up, supporting the main scenario of growth in excess of 8%.
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Industrial production and retail sales indicate an underlying resistance to growth.
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Following a similar pattern, industrial production picked up slightly in December, up by 12.8%, proof that there is underlying resistance in the Asian giant's activity. Another positive factor was provided by the retail sales of consumer goods, up 18.1% year-on-year in December. Private consumption, which continues to be the one big element missing from the growth equation, with a relative weight in the economy that hardly reaches 35%, has great potential for growth. The problem is whether it will liven up quickly enough to offset the decline in exports and a possible halt in the housing sector.
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