China up or down after Games?

Trip Start Jan 30, 2007
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Flag of China  ,
Tuesday, September 2, 2008

The Chinese government this year has been managing a lot. What with the Olympics, earthquakes, snow storms, and probably worse: a sharemarket crash [sorry, correction].

The sharemarket,which grew amazingly last year, has slumped to its lowest level in 20 months. What's more, millions of investors were Chinese mums and dads. Aspiring middle class.

The Chinese government has been talking up the Games. And now it is maintaining that like other nations, it will benefit from the Olympics. Their latest line is that tourism numbers will pick up AFTER the Games. And they are also reckoning that the Chinese economy won't slow down, but it will get a boost post-Games.

This is despite a global decline in demand, the US economy deep in recession, a shortage of resources worldwide, rising oil prices and moves to other places where the labour is cheaper and their aren't so many restrictions.

Funnily enough, I would have thought that China would have prepared for the Games by opening up and making it easier for foreigners to do business. Afterall, they've often seen themselves as the centre of the world, just lacking Western technology.

But instead the CCP seems to be restricting businesses, making it more difficult for foreign companies to come into China and set up shop.


Here's China Daily's forecasts:

Chinese economy where to go post-Olympics
(Xinhua)


As the 2008 Beijing Olympics ended in a splendor of fireworks, concerns over a post-Games downturn for the Chinese economy re-emerged.

History shows that some host countries had experienced post-Olympic declines because investment dropped, such as Tokyo and Seoul.

Japan witnessed a drastic fall in growth the year after the 1964 Games, down to 5.2 percent from the year-earlier 13.1 percent. The Republic of Korea saw the rate slip from 10.6 percent to 6.7 percent in 1989.

Will China follow the same pattern? The world ponders.

Worry over post-Games economy justified or not?

The capital's gross domestic product (GDP) was expected to register an average annualized 11.8 percent growth between 2005 and 2008, when the city was investing for the Games, said Chen Jian, the Beijing Olympic Economy Research Association deputy head.

The expected growth was, on average, 0.8 percentage points higher than the average rate for the five-year period from 2001 to 2005.

Chen said investment for the Games had driven the city's growth by the biggest margin in 2007 -- 1.14 percent.

Official statistics showed organizers had spent 13 billion yuan ($1.90 billion) on construction of venues and another 280 billion yuan on urban infrastructure, such as to upgrade transport and improve the environment.

About 1.5 million new job opportunities were created between 2005 and 2008 along with the investment.

Other host cities, including neighbouring Tianjin and Qingdao, also reported higher growth as they geared up for the Games. The sailing events in Qingdao helped boost regional economic growth by 0.8 percent annually.

The positive impact of hosting the Games was there, but its leverage among the huge national economy was limited.

Beijing's gross domestic product (GDP) only accounted for less than four percent of the country's total, and Olympic-related factors were not major forces behind the growth in host cities to make a difference after the Games.

The annual investment of Beijing for the Olympics took up only one percent of the country's total between 2002 and 2007, according to statistics. About 718,300 square meters of Games-related construction was completed in 2007, 0.0139 percent of the total.

Zhang Xiaode, a China National School of Administration professor, depicted the situation in a vivid way. "If the Chinese economy is measured at a scale equal to the sea, the impact of a frog into the sea can almost be ignored."

A J.P. Morgan Chase report said the Chinese economy was not likely to slow in the post-Games period. It argued host countries of large economies that enjoyed fast growth were not vulnerable to such impact.

Justin Yifu Lin, the chief economist and vice president of the World Bank, had long held China would face no post-Olympic recession.

The size of the economy dwarfed the investment on building venues and infrastructure for the 2008 Beijing Olympics, he said in May.

The country had plenty of investment prospects as it was to host the World Expo in Shanghai and the Asian Games in Guangzhou in 2010, among other international events.

President Hu Jintao also openly endorsed the view in a joint interview with overseas journalists a week ahead of the Games.

"Preparations for the Games have undoubtedly boosted Beijing's economic and social development. However, the city's GDP accounts for a tiny part of China's total, so people should not overestimate the impact."

Chanllenges Remain

However, economists were still concerned of the "post-Games effect," because investment would inevitably drop and consumption that had come along with domestic and overseas tourists would decrease or even come to zero after the Games.

The impact could combine with other uncertainties such as the global slowdown and slack export demands to complicate the prospects of the economy; it was already under huge pressure of slower growth and economic restructuring, said Wang Yiming, a National Development and Reform Commission economist.

In the first half, the national economy expanded 10.4 percent -- 10.6 percent in the first quarter and 10.1 percent in the second. The world's fourth largest economy was on a track of slowing since the third quarter of last year registered 11.5 percent.

Meanwhile, the country's inflation rate eased to 6.3 percent in July from 7.1 percent in June, 7.7 percent in May and a peak of 8.7 percent in February. This was due to a series of measures including tightening monetary policies to rein in runaway prices.

But the country's decision makers are now in a dilemma of trying to seek a balance between fighting inflation and boosting economic growth in the rest of the year to ensure a steady and fast economic development.

Individual investors, who looked to stock and real estate markets to feel the pulse of the economy, were discouraged during the Olympics.

The country's stock market failed to live up to wide expectations of a bullish run, and reported a more than 15 percent decline in nearly a month before and after the Olympics.

Wang said the performance of the market was not directly linked to the Olympics. He believed share prices would go towards a more reasonable range as investor confidence returned on the back of a strong economy and steady profits revealed in the half-year reports of listed companies.

Property prices, which had been soaring since early 2001, seemed to have had come to a standstill since the end of last year. Many feared there could be a drastic fall in prices post-Olympics.

Olympic researcher Chen said the property market was affected by the Games as it had boosted Beijing housing prices.

He also believed the national market enjoyed good prospects in the long run. "More people will move into cities and create new demands, as the country's urbanization is below the world average."

Steady growth anticipated

Despite the challenges, economists agreed on the future prospects of the Chinese economy.

It would maintain a steady growth this year, economist Wang said. "The overheating risks that once threatened the Chinese economy had been pared following the country's macro-control measures; three major drivers of growth -- investment, consumption and exports -- would maintain a good momentum."

"The national economy is now on a normal track as overheating risks recede," said Fan Gang, a member of the Monetary Policy Committee under the People's Bank of China, the country's central bank.

"Risks of a sudden and drastic fall-off on the stock and real estate markets had already been largely reduced and energy prices had been adjusted. There is not much to worry about (in) the economy after the Games."

Analysts said China was expected to maintain a seven to eight percent growth, or even higher, for at least 15 to 20 years. They made the prediction on robust investment, great potential for further development and proper macro controls.

http://www.chinadaily.com.cn/bizchina/2008-08/28/content_6978858.htm
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