Thursday, September 25, 2008

Risk of ‘China bashing’ increases as global economy deteriorates

As the global economic outlook continued to deteriorate, there was a risk of protectionism, or greater “China-bashing”, said director of advisory services for China Economist intelligence unit Xu Sitao, on Monday.

But contrary to existing fears, China was not exporting inflation, he stated at a briefing in Johannesburg, and added that from an economic development perspective, China’s growth was uplifting many.

“The US financial crisis, and rising commodity prices pose challenges for China, but policy makers in emerging Asia are often biased towards growth, and while China will promote growth, it has more policy leeway to control inflation,” said Xu.

For the medium-term, the days of super-low inflation were over, however, Xu remained convinced that China would not suffer hyperinflation, despite many fears that this would happen. He noted that Chinese people did not borrow excessively, or spend beyond their means, and, unlike Latin America, Asia rarely suffered from inflation.

China’s core inflation (excluding food and energy), was at about 1,7% to 2%, while food inflation was about 20%.

He predicted that after the Beijing Olympics, the fuel and energy prices, which were currently heavily subsidised, would increase, but not to any damaging extent.

Xu also felt that the intensity of urbanisation in China had been underestimated, and would not stop or slow down in the near future. With a population of some 1,3-billion people, about 40% of these people lived in cities, and it was expected that this would increase to about 60% of the population eventually living in cities.

For this reason, he also indicated that the “labour shortage is misleading, it is a myth”. With so many people making the move to the city, more jobs would need to be created, more infrastructure provided and so on. 

This continuing urbanisation was also good new for commodities, particularly steel. Xu said that there was no scrap steel market in China to speak of, as so much of the development was so recent.