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11 Nov 2008

International Economy

China’s 2009 Economic Stimuli: Withstanding Six-Year Low Economic Growth (Business Brief No.2348)

On November 9, 2008, the Chinese authorities announced a four-trillion-Yuan economic stimulus package (equivalent to USD586 billion), to be implemented through to 2010 to counter a current economic slowdown. The Chinese growth rate is expected to drop to 8.5 percent in 2009 against the growth of 9.7 percent this year due to sluggish exports battered by the expected shrinkages in their key markets, i.e., the US, the European Union and Japan. China's decelerating exports this year have dealt a blow to their industrial production that recorded their lowest growth since 2004, resulting in factory closures, especially in labor-intensive industries, and layoffs. The Chinese real estate sector has also become lackluster amid ebbing domestic demand.
China's healthy fiscal standing has supported a mandate by the Chinese government to implement increased spending and thus stimulate their economy. The Chinese authorities are also in a position to issue bonds to mobilize funds for economic stimuli, thanks to their low public debt. On the external front, China has some of the world's largest international reserves at over USD 1.9 trillion. At the same time, China's inflation is expected to ease over the remainder of this year in line with declining prices for energy and commodities. This provides some leeway for Chinese policymakers to adopt easing monetary policy via more rate reductions throughout this year-end to support domestic enterprises.
Efficient economic stimuli, along with easing monetary policy appropriately adopted by the Chinese authorities, are expected to help drive their domestic economy, while cushioning the impacts of the global economic slowdown to a degree. Amid the global economic gloom, China's monetary and fiscal policies are unlikely to spur the Chinese economy to record double-digit growth, as experienced earlier.
As for the impacts on Thailand, China's sluggish exports have also hurt our exports to the mainland, which mainly include accessories, parts and capital goods. During 9M08, Thailand's export growth to China dropped to 22.3 percent YoY, against the 26.8 percent growth in the same period of 2007. Exports to China recorded a slump growth in August and September, especially shipments of electrical appliances, plastic pellets and chemicals.

In addition, Thailand may brace for heightened competition with cheaper Chinese products which may flood the Thai market in light of Chinese factory closures, plagued with ebbing demand from established markets and rising costs of production. During 9M08, imports of Chinese products to Thailand surged considerably, e.g., household appliances and home décor products, ceramic products, automobile parts and accessories, music instruments, toys, sports equipment, cathode ray tubes and parts thereof. Even so, an export assistance program that has been steadily implemented by the Chinese government, especially the latest increases in export rebates on several product categories are expected to help strengthen the Chinese competitiveness in global markets. This may help trim the number of export-oriented enterprises vulnerable to business closedowns. Thailand's exports, on the other hand, may be confronted with tougher competition from Chinese products in the world's markets plagued with lower purchasing power amid the increasingly battered global economy.

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International Economy