China - Economic Overview

An Expert's View about Business Environment in China

Posted on: 31 Mar 2012

Latest Development
• The added-value industrial output grew by 11.4% in the first two months of 2012, down from 13.9% growth for the whole year of 2011.
• Fixed assets investment grew by 21.5% in the first two months of 2011.
• Retail sales increased by 14.7% in the first two months of 2012, compared to 17.1% growth for the whole year of 2011.
• Inflation moderated to 3.9% in the first two months of 2012, with food prices grew by 8.3% and non-food prices up by 1.8%.
• In the first two months of 2012, exports and imports grew by 6.9% and 7.7% respectively, resulting in a trade deficit of US$4.3 billion.
• The Manufacturing Purchasing Managers’ Index improved slightly to 51% in February 2012 from 50.5% in January.

Current Economic Development
The Chinese economy grew by 9.2% and 10.4% in 2009 and 2010 respectively. In the four quarters of 2011, real GDP grew by 9.7%, 9.5%, 9.1% and 8.9% respectively, resulting in annual growth of 9.2% for 2011.
As the Chinese economy revived in the second half of 2009, measures had been taken to minimize the chance of inflation and economic overheating. The People’s Bank of China (PBOC) raised the reserve requirement ratio six times in 2010 and five times in the first half of 2011. The reserve requirement ratio for large commercial banks reached 21% on 18 May 2011. The PBOC has also raised the base lending rate for three times so far in 2011. As inflation is moderating in recent months, the PBOC reduced the reserve requirement ratio by 0.5 percentage points on 5 December 2011 and another 0.5 percentage points on 24 February 2012.
Fixed assets investment is one of the major driving forces of the economy. After growing by 30.1% in 2009, fixed assets investment continued to grow by 24.5% in 2010. In 2011, fixed assets investment (excluding rural households) grew by 23.8% (or 16.1% in real terms), slightly slower than 25.6% growth recorded for the first half of 2011. In the first two months of 2012, investment growth slowed further to 21.5%.
Retail sales of consumer goods grew by 18.4% in 2010. In 2011, total retail sales increased by 17.1% with sales of jewellery went up by 42.1%, clothing and footwear went up by 24.2%, furniture went up by 32.8%, automobiles went up by 14.6% and household electrical appliances went up by 21.6%. In the first two months of 2012, growth of retail sales slowed to 14.7% with sales of household electrical appliances recorded a decline of 2.9%.

The consumer price index (CPI) went up by 5.9% in 2008 but dropped slightly by 0.7% in 2009. In 2010, CPI increased by 3.3% on average with food prices increased by 7.2%. In 2011, CPI went up by 5.4% on average with food prices increased by 11.8% and non-food prices increased by 2.6%. In February 2012, CPI dropped to 3.2% with food prices increased by 6.2%. In the first two months of 2012, CPI increased by 3.9% on average with food prices increased by 8.3% and non-food prices went up by 1.8%.
In 2010, added-value of industrial output (by large enterprises with annual sales exceeding RMB20 million) grew by 15.7%. In 2011, added-value of industrial output grew by 13.9% while the output of heavy industries grew by 14.3%, light industries increased by 13% and the output of foreign invested companies increased by 10.4%. In the first two months of 2012, added-value of industrial output increased by 11.4% with the output of foreign-invested companies grew by 5% only.
China’s Manufacturing Purchasing Managers’ Index (PMI) (compiled by China Federation of Logistics & Purchasing and China Logistics Information Centre) improved slightly from 49% in November 2011 to 51% in February 2012. The sub-index of new export order also improved slightly in February 2012 to above the 50% expansionary zone.
Money supply - the growth of M2 (broad money supply) accelerated to 13% in February 2012 from 12.4% in January. The growth of RMB loans also picked up slightly by growing at 15.2% in February 2012 compared to 15% in January.
China's non-state sector expands rapidly and experiences healthy development in recent years. The status and economic contribution of private enterprises received official recognition in the 9th National People’s Congress held in March 1999. By the end of 2010, there were 8.4 million private-owned enterprises (comparing to 1.76 million at end-2000). By the end of 2010, there were 948,202 private enterprises in Guangdong province.
Beginning 21 July 2005, China reformed the Renminbi (RMB) exchange rate regime by moving into a managed floating exchange rate system with reference to a basket of currencies, and the exchange rate of RMB was re-valued to 8.11 per US dollar on 21 July 2005. Effective 21 May 2007, the floating band of RMB against the US dollar is enlarged from 0.3% to 0.5% around the central parity published by the People’s Bank of China on each working day. At the end of Febeuary 2012, the exchange rate of RMB was 6.2921 per US dollar compared to 6.7813 at the end of June 2010.
China's foreign exchange reserves reached US$3,181 billion by the end of 2011, the largest in the world. Foreign debts amounted to US$642.5 billion at the end of June 2011, of which 28.1% was medium- or long-term debts and 71.9% was short-term debts. The debt service ratio stood at 1.63% in 2010.
In 2011, the number of foreign tourists grew by 3.8% to 27.1 million. Total foreign exchange earnings from tourism increased by 5.8% to US$48.5 billion. According to the World Tourism Organization, China remained the 4th most popular tourist-destination (behind France, the US and Spain) in the world in 2009.

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Posted: 31 March 2012

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