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China's economic miracle is deteriorating much quicker than most observers had expected, and not all the blame can be pinned on the global financial crisis. Beijing should also shoulder some of the responsibility for China's slowdown as central government policy has played a key role in the country's economic weakness, said an influential China analyst Friday.
"Yes, global imbalances are partly to blame. However, it is domestic factors that have largely contributed to the sudden worsening in the data," said Ben Simpfendorfer, China economist with Royal Bank of Scotland in Hong Kong.
After Beijing introduced measures to tighten credit controls in late 2007, some Chinese firms were already complaining about financial difficulties, well before the global credit crunch spilled over into Asia, Mr. Simpfendorfer noted.
Officials in Beijing, meanwhile, were distracted by the National People's Congress in March, which resulted in a reshuffle of top policymakers, and by two natural disasters - severe snowstorms in January and the Sichuan earthquake in May - which diverted government resources.
Soaring commodity prices and the threat of runaway inflation also meant officials were not concentrating on the possibility of a slowdown, while the Beijing Olympics in August - during which time many factories were closed to improve air quality - also distorted data on the underlying economy, Mr. Simpfendorfer said.
"The upshot is that policy was left too tight for too long. Arguably, the [People's Bank of China] might have been cutting interest rates and relaxing credit controls earlier if it wasn't for stubbornly high CPI inflation and a series of successive distractions," he said.
In the third quarter of 2008, China's GDP growth fell to its lowest level since 2003, dropping to 9% after five years of double digit growth. Consumer confidence is also at a low ebb and real estate prices are dropping in many parts of the country. Factories in the Pearl River Delta area - the country's industrial heartland that produces many of the exports for North American consumers - are closing leading to unrest and strikes.
Beijing has already responded to the crisis with a series of fiscal and monetary policy measures. There will be more announcements from the Chinese government in the months ahead, said UBS Investment Research economist Tao Wang.
"We think about 1% of GDP needs to be outright spending on infrastructure, public housing and social programs such as health and education," said the UBS economist. "We believe direct government spending would be more effective in stimulating domestic demand than tax cuts."
Other measures Beijing could be considering include pressuring local governments to provide land at lower prices to real estate developers, or more moves to increase bank lending.
Another area of concern is the possibility of a tendency toward protectionism in the United States following the election of Barack Obama as president. That possibility is "a risk rather than a quick reality," said Michael Hartnett, global emerging market equity strategist at Merrill Lynch.
Ken Courtis, the former head of Goldman Sachs in Asia, said governments throughout the region are "eager" to start the process of economic recovery following months of frustration with the out-going U.S. administration.
"Everywhere in Asia governments are adopting measures to strengthen the financial systems and to stimulate demand," Mr. Courtis said.
Everywhere in the region, governments look to the new opportunity that the [U.S] election has created to get started."
China's economic miracle fading fast
"Yes, global imbalances are partly to blame. However, it is domestic factors that have largely contributed to the sudden worsening in the data," said Ben Simpfendorfer, China economist with Royal Bank of Scotland in Hong Kong.
After Beijing introduced measures to tighten credit controls in late 2007, some Chinese firms were already complaining about financial difficulties, well before the global credit crunch spilled over into Asia, Mr. Simpfendorfer noted.
Officials in Beijing, meanwhile, were distracted by the National People's Congress in March, which resulted in a reshuffle of top policymakers, and by two natural disasters - severe snowstorms in January and the Sichuan earthquake in May - which diverted government resources.
Soaring commodity prices and the threat of runaway inflation also meant officials were not concentrating on the possibility of a slowdown, while the Beijing Olympics in August - during which time many factories were closed to improve air quality - also distorted data on the underlying economy, Mr. Simpfendorfer said.
"The upshot is that policy was left too tight for too long. Arguably, the [People's Bank of China] might have been cutting interest rates and relaxing credit controls earlier if it wasn't for stubbornly high CPI inflation and a series of successive distractions," he said.
In the third quarter of 2008, China's GDP growth fell to its lowest level since 2003, dropping to 9% after five years of double digit growth. Consumer confidence is also at a low ebb and real estate prices are dropping in many parts of the country. Factories in the Pearl River Delta area - the country's industrial heartland that produces many of the exports for North American consumers - are closing leading to unrest and strikes.
Beijing has already responded to the crisis with a series of fiscal and monetary policy measures. There will be more announcements from the Chinese government in the months ahead, said UBS Investment Research economist Tao Wang.
"We think about 1% of GDP needs to be outright spending on infrastructure, public housing and social programs such as health and education," said the UBS economist. "We believe direct government spending would be more effective in stimulating domestic demand than tax cuts."
Other measures Beijing could be considering include pressuring local governments to provide land at lower prices to real estate developers, or more moves to increase bank lending.
Another area of concern is the possibility of a tendency toward protectionism in the United States following the election of Barack Obama as president. That possibility is "a risk rather than a quick reality," said Michael Hartnett, global emerging market equity strategist at Merrill Lynch.
Ken Courtis, the former head of Goldman Sachs in Asia, said governments throughout the region are "eager" to start the process of economic recovery following months of frustration with the out-going U.S. administration.
"Everywhere in Asia governments are adopting measures to strengthen the financial systems and to stimulate demand," Mr. Courtis said.
Everywhere in the region, governments look to the new opportunity that the [U.S] election has created to get started."
China's economic miracle fading fast
