China's export growth, as is their key economic driver, suffered a setback in June 2008 and this was the major reason that caused China's economic growth in 2Q08 to slow to 10.1 percent versus the growth of 10.6 percent in the first quarter of this year. It has been projected that China's exports will continue to decelerate in the last half of 2008 due to a prolonged economic downturn in the US, which has dominoed to the economies of their key export markets, including the EU, Japan and Asian countries. In addition, the continual depreciation of the Yuan will put Chinese exports at a disadvantage competitively.
China's inflation is still under pressure to stay high. Although inflation gauged by their CPI (Consumer Price Index) fell from 8.5 percent (Y-o-Y) in April to 7.7 percent in May and 7.1 percent in June, 2008 respectively, cost-pushed inflation is increasing steadily, following the rising PPI (Producer Price Index) from 8.1 percent in April to 8.2 percent in May, and 8.8 percent in June 2008. This leads to the forecast that supply-pushed inflation has driven up production costs in China and may continue to spur China's CPI to stay aloft in 2H08. China's inflation in 2008 is expected to stay around 6.5-7.0 percent, increasing from 4.8 percent in 2007.
KASIKORN RESEARCH CENTER (KResearch) holds the view that despite their slowing export trend and expected soaring inflation, China's domestic economy in both consumption and investment sectors should expand healthily in 2008 due to the steady growth of their industrial, retail and service sectors, as well as increased investments in fixed assets and FDI. These financial segments, which are considered important drivers to the Chinese economy, should help spur their economic growth for this year to 9.9 percent.
Thai exports to China over the rest of this year will grow continuously to more than 25 percent of our overall exports, against the growth of 28.8 percent recorded in the first five months of this year and 26.5 percent of 2007 due to favorable growth within the Chinese domestic economy and the Chinese government's policy of boosting their domestic economy through increased budgetary expenditures on basic infrastructure systems and utilities. This would help bolster import demand for capital goods and raw materials used by the industrial sector to help spur domestic consumption.
Thai exports of agricultural products (farm produce, livestock and fish) to China will expand continuously in 2008 as signaled by a 29 percent growth of such exports sent there in the first five months of 2008 (5M08), against the 16.9 percent in 5M07 and 8 percent in 2007. This is attributable to falling farm produce and food supplies in China due to many natural disasters. As a result, Chinese authorities have had to reduce import tariffs on many products. The import tariff on pork has been reduced to 6 percent from 12 percent; soybean meal to 2 percent from 5 percent, and coconut/olive oil to 5 percent from 10 percent, to increase the volume of food and pork to meet their domestic demand. It is expected that China's decision to reduce tariffs on farm produce and food imports will help spur Thai exports of such products to them in 2H08 and for the entirety of 2008.