A Positive Note from China
That being said, one of the world’s biggest creditors, China, is quietly exceeding expectations. Economists are racing to raise their fourth-quarter gross domestic product (GDP) growth estimates for the country. Now the consensus expectation calls for 2011 GDP growth of more than 9 percent.
That’s excellent growth when one considers the volatile nature of the global economy in 2011. It also makes our forecast for 8.5 percent GDP growth in China next year all the more achievable.
Inflation, one of the most vexing issues faced by the country in 2011, should be comfortably below 5 percent next year, while industrial production should also slow due to weaker exports. Industrial production has already begun to slow and many analysts expect 12 percent yearly growth in industrial production in December, compared to about 14 percent in the third quarter. We forecast that China’s industrial production will grow by about 12 percent in 2012.
We expect that 2012 will be a slow year for export growth in China. December’s export growth is expected to come in at about 10 percent year over year; imports are expected to have grown by 17 percent. In full-year 2011, China’s exports should grow by about 20 percent, down from 31 percent the previous year. Imports are likely to have grown by 25 percent, down from 30 percent the previous year. Consequently, China’s trade surplus will decline to less than USD145 billion, compared to USD184.5 billion in 2010.
These aren’t weak numbers. Nor are they off the charts. But this level of trade growth will allow China to make a positive contribution to the global economy. A reduction in China’s trade surplus will also alleviate one of the sources of friction between China and its trading partners. China’s trade surplus in 2008 was USD296 billion, equivalent to about 6.5 percent of GDP. This year’s trade surplus should represent about 2.2 percent of GDP.
As China’s trade surplus stabilizes to lower levels, western politicians will need a new scapegoat. For now, an “undervalued currency” will have to carry the load.
But if one can look beyond the usual politically charged commentary on China, the country should be recognized for its contribution to global economic growth. The country has also made great strides to liberalize its economy and address the concerns of its trade partners. In absolute terms, China’s 2011 imports should come in at about USD1.7 trillion, healthy growth from the USD1 trillion booked in 2009 and the USD244 billion in 2001. If China continues to import about USD1 trillion worth of goods per year for the next decade, the country will have done much to boost economies across the world.
China is now largest export market for Japan, South Korea, the Southeast Asian region, Brazil and South Africa. China is also the second-largest export market for the EU, and the third-largest market for the US.
As has long been the case, the level of cooperation between the US and China will largely determine the fate of the global economy in 2012. Despite the possibility of political tricks on either side of the Pacific, the two leaders of the global economy will find a way to work together on the major economic and geopolitical issues of the day. If that proves to be the case, then any other positive economic developments next year will simply be icing on the cake.
Happy New Year.