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16 Mar 2009

International Economy

China Fighting Economic Crisis: Prodding Domestic Spending (Business Brief No.2456)

Chinese authorities are now watching the results of their budgetary disbursements for economic stimuli. Amid vulnerability in exports and the global economy, if it is necessary, they may increase fiscal impetus again to spur the economy. Despite China's higher ratio of their budget deficit to GDP this year, it is lower than many other countries. Therefore, China will still be in a position to permit a higher budget deficit to spur their economy and boost economic growth this year to 8 percent per their official target. However, analysts expect that China's economy will likely not grow as high as 8 percent. The IMF forecasts that China's economy will decelerate to only 6.7 percent growth, while Consensus Forecasts projects 7 percent growth for them. Even if China's economy can grow 8 percent as targeted, it is still lower than the 2008 growth of 9 percent.
Compared to other countries, China's economy will likely grow better than others, thanks to support by the state that has stimulated spending to drive domestic growth, plus easing monetary policy that has enabled the business sector to gain greater access to funding, thus likely to shore up China's economic growth. Moreover, China has an advantage in their international reserves being the highest in the world – permitting high fiscal spending – and a large domestic market that can cushion the impact of the downturn on the Chinese economy and carry on growing. This will help the Asian region to weather the economic storm.
Chinese spending on infrastructure will also benefit their economy, particularly the construction sector, along with construction materials such as iron and copper, which might affect commodity prices in the world market. Nonetheless, the effectiveness of their economic stimuli on consumption in the industrial sector has been quite low. Therefore, the hope that China's economic stimuli will help Asia and the Thai economy (due to higher demand for raw materials and intermediate goods) will likely never materialize because many key trade partners, such as the USA, EU and Japan have fallen into the recession and it hasn't bottomed out yet. Hence, China's export sector will show further contraction, inhibiting their economic growth. Their demand for raw materials and intermediate goods from Asia – and Thailand – will similarly falter. It is expected that our exports to China still decelerate continuously this year. Meanwhile, our products have to compete with Chinese products that have higher price competitiveness in the world arena since the Chinese authorities will support their exports by reducing export tariffs, an additional measure along with the introduction of export tax rebates, recently.

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International Economy