Slowdown in mainland economy on horizon
THE MAINLAND'S rapidly growing economy is showing few signs of slowing down, but there could be a few blips just over the horizon, according to a leading Hong Kong economist.
George Leung Siu-kay, HSBC chief economist, Greater China, said he could see no cause for major concern for the next 18 months to two years, but 2009 could be the year for changes in the mainland economy due to over-investment and a global reduction in demand for consumer products.
'One of the biggest challenges the mainland government currently faces is how to cool investment, the major engine in the fast-growing economy for over a decade,' Mr Leung said. The ratio of total investment as a percentage of GDP had hovered between 40 and 45 per cent over the past two years, the highest percentage in global economic history.
'No country at any time, including Britain during the Industrial Revolution and Japan's rise to economic might during the 1960s, has experienced such high percentages of investment compared to GDP,' he added.
At some stage the economy would be subject to the age-old gravity story. 'What goes up will inevitably come down,' Mr Leung said, predicting that when this would happen depended on several factors, including the level of foreign demand for products produced in China and the mainland's capability to absorb any overcapacity through domestic consumption.
'The Chinese authorities are aware of the big picture and began making economic structural adjustments some time ago to encourage domestic consumption,' Mr Leung said.
It would remain to be seen whether enough had been done to absorb overcapacity if there was a decline in demand for Chinese produced products by foreign consumers, he said.
'A reduction in demand for consumer goods in the United States or a global economic slowdown could result in job losses in China, unless the domestic market is able to take up the oversupply of consumer products,' said Mr Leung, who will deliver a presentation on the mainland's macro economy during the Human Capital in Greater China Conference.
He said if the mainland experienced a significant economic slowdown, the economy could take years to recover.
'Just like the Great Depression that buckled the US in the 1930s, if the impact of a slowdown was severe it could take a decade for the Chinese economy to recover.'
He said forecasts of macroeconomic and social activities were a critical component of many business and infrastructure decisions. Companies and organisations relied on forecasts in forming their production, expansion and recruitment plans.
'Policymakers rely on forecasts when choosing the path of monetary policy or when forming the national budget. Banks and financial institutions also rely on forecasts to plan their future strategies.'
