Can we count on China?

Bloomberg:

U.S. stocks fell, extending the fourth straight weekly slump in the Standard & Poor’s 500 Index, as China quelled speculation the government will add to its stimulus plan and Goldman Sachs Group Inc. said the global recession is worsening.

Financial Times:

China will meet its goal of 8 per cent economic growth this year, Premier Wen Jiabao said on Thursday, although he did not outline any new spending proposals to revive the economy.

Wall Street Journal:

At the opening of China’s National People’s Congress Thursday, Premier Wen Jiabao promised to bolster the economy and reaffirmed an economic growth forecast of 8% this year — a level he said is necessary for the nation to avoid social unrest.

But he stopped short of promising a new stimulus package that had been widely rumored in China. In his report to the annual legislative session, Mr. Wen repeated the plan announced last year for 4 trillion yuan, or around $585 billion, in investment, including 1.18 trillion yuan from the central government over 24 months.

What is so magic about 8%? I don’t know. Perhaps this is merely because the word "8" in Chinese is pronounced similar to the word which means rich. Having announced 4 trilion yuan of stimulus package late last year, the market speculated that the Chinese government will add the stimulus bill soon. Unfortunately, Premier Wen did not say anything about that.

Is China becoming so important that the global economy can’t recover if China can’t keep its growth in this magic 8% rate? I am not very sure on this. What I am sure is that, 8% is not an easy target for China. The growth of China has been slowed in the last quarter to 6.8%, the export slumped, and so did import. Clearly, the model of export driven economy like China is being hit by the weakness in the foreign economies. At the same time, it seems that people in China are not going to spend as much. This is a big problem for China, as a country with the highest saving rate on earth. I believe that if China cannot successfully switch to a more internally-driven economy, it is going to be a very difficult year for China, not to mention that it can save the world.

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About Zarathustra

Zarathustra: Founder and Managing Editor of Also sprach Analyst. Once an analyst, now an investor and entrepreneur. Based in Hong Kong, but Londoner at heart.