Nation likely to escape post-Olympic doldrums

PUBLISHED : Monday, 15 September, 2008, 12:00am
UPDATED : Monday, 15 September, 2008, 12:00am

Prophesies of investment and growth hangovers are generally made about every post-Olympic period, but the mainland's sizzling economic growth is expected to escape this fate after the curtain fell on the Beijing Games last month.

Two weeks after the closing ceremony, some analysts are sounding gloomy about the immediate outlook for economic growth, but others say the worries about a post-Games slump are misplaced.

The pace of economic expansion may slip to the slowest in four years, according to Zhu Baoliang of the State Information Centre, a top government think-tank. Full-year growth is expected to slow from last year's 11.9 per cent to 10 per cent and into single digits next year, he said.

Last week, Hu Xiaolian, head of the State Administration of Foreign Exchange, warned the economy continued to face pressure from inflation and softening external demand.

'The economy is still facing significant problems, with the uncertainty of the international and domestic environments adding risk to economic and financial development in China,' Ms Hu told a central bankers' conference in Argentina.

The problem for policymakers is that the close of the Olympics has coincided with a global slump that is weakening demand for mainland exports, stimulating fears that the mainland will see a much more serious slowdown than forecast.

Speculation is growing that Beijing will attempt to boost the sagging economy with a massive fiscal stimulus package - possibly in the region of 400 billion yuan (HK$455.72 billion).

'My advice is: calm down,' said Arthur Kroeber, director of Beijing consultancy Dragonomics.

'China's economy is basically in fine shape. There are a few downside risks but policymakers have plenty of monetary and fiscal weapons in their armoury to combat those risks.'

Mr Kroeber said the theory that fixed-asset investment would cool after the pre-Olympic building binge massively overestimated the importance of the capital's economy relative to the rest of the country.

Although total Olympic-related spending over the past six years came to a massive US$42 billion, this represented just 0.5 per cent of the 51 trillion yuan spent on fixed-asset investment during the same period.

With the country's urban population growing at 15 million a year, demand for housing and related infrastructure - in Beijing as elsewhere - should remain strong for years to come.

Moreover, the economy has so far steered a firm course through the global headwinds buffeting mainland exporters.

'Despite the further downshift in global growth, China's overall economy has remained solid and resilient so far this year,' JP Morgan economists said in a research note, pointing out that July's trade, retail sales and fixed-asset investment all came in more strongly than expected.

Nevertheless, with weakening demand from Europe, Japan and some emerging economies slowing export growth across the board, industrial activity and export-related investment are also likely to be hit.

Although few analysts predict a precipitous slowdown, the huge improvement in the country's fiscal situation has created conditions for a loosening of the fiscal purse strings.

After recording its first fiscal surplus since 1985 last year, Beijing has seen this year's surplus grow by a remarkable 32.1 per cent in the first seven months. At this pace, the government can expect to run a surplus around the 600 billion yuan mark - roughly 10 per cent of budgeted expenditure.

This makes a significant increase in public spending in the second half of this year increasingly likely - although whether this would amount to a 'fiscal stimulus' or merely represent ordinary expenditure after years of belt-tightening is a moot point.

Obvious targets for investment include social services, with an emphasis on improving a dilapidated health-care system and subsidising schooling in rural areas, and public infrastructure. A large chunk of cash will also be directed towards post-earthquake reconstruction.

'China's post-Olympic year looks pretty good. If it all works out, Beijing's policymakers will deserve a gold medal for sailing through some pretty stormy economic seas,' said Mr Kroeber.