Its growth is becoming independent of other key markets such as US
BEIJING: Although China has become the second-largest economy in the world, it is increasingly independent of - even out of sync with - the other big markets, say analysts here.
While the United States and Japan worry about the risk of a double-dip recession and are mulling over fresh stimulus plans, China is fretting about the opposite. It is concerned that growth is too fast and has firmly ruled out another boost.
Earlier this month, Mr Fan Jianping, who heads the official economic forecast agency, told state media that China's economy does not need one.
Its slowdown in the second-quarter growth to 10.3 per cent - from 11.9 per cent in the earlier quarter - is not something to worry about, he added.
China pumped in four trillion yuan (S$798 billion) in November 2008 at the onset of the global financial crisis to battle the recession and in the past two years, there has been persistent talk of a second stimulus package.
But the official People's Daily also backed up Mr Fan's assessment, pouring cold water on more boosters for the economy.
In an article two weeks ago, it quoted three government economists as saying that slower but better-quality growth is preferred, and that more stimulus would cause bubbles.
Beijing is also on a different path from the other major economies in its monetary policies.
While many influential countries are keeping interest rates low and allowing more liquidity into their systems, China has been trying to tighten credit and soak up loose money.
Deflation is also a risk in some advanced economies. By contrast, China is grappling with fears of rising food, labour and land costs and runaway property prices.
All these differences show that China is becoming more independent of other major economies, said Mr Li Zhenhua, an economic strategist at Shanghai-based Rili Asset Management.
'We have always talked about China being over-reliant on the US and other major markets to support its growth,' he said. 'But the crisis has pushed China to rely on domestic growth and now it is No. 2 (in the world economy).'
China's exceptional recovery from the global crisis comes from its special home advantage: deep pockets and a command-and-control economy.
Its four trillion yuan stimulus package propelled economic growth to 8.7 per cent last year, to the envy of other countries which have got much less bang for their buck.
China's powerful state arm unleashed massive investment projects and a nationwide campaign. That pushed consumers to buy more cars and electronics within months. Investment and consumption contributed some 12 percentage points to growth last year.
'But growth was dragged down by exports which posted a negative 3-odd percentage points,' OCBC economist Xie Dongming pointed out.
He expects China's push to develop its inland regions to support a boom in investment and spending in coming years.
'Overall, in the next few years, China will try to be more independent of the external environment and find growth drivers from domestic sectors instead of external factors,' he said.
Meanwhile, the world's major economies will export more of their goods to China and will be more influenced by its economic cycle, said Mr Li.
'This may mean that the roles are reversed,' he said. 'The world economy becomes more reliant on China.'
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Source - The Straits Times (http://www.straitstimes.com/Money/Story/STIStory_571868.html)



