Wang Xin, IMF economist, on behalf of Murtaza Syed-Resident Representative of IMF in China delivered a speech in the Keynote Session of CHINA MINING 2012
(Photo from www.mlr.gov.cn. Photo:Ye Xingmao / Editor: Chen Hui)
The Theme Forum of CHINA MINING 2012 “Join hands to meet challenges and promote sustainable development” was held at Tianjin Meijiang Convention and Exhibition Center on the morning of Nov.4th, 2012. Mr.Wang Xin, IMF economist, delivered a speech on behalf of Murtaza Syed, the resident representative of IMF in China.
Glad to be here, I`m an economist from IMF Beijing office. Today, I will make a speech on behalf of Mr. Murtaza Syed, the resident representative of IMF in China
My speech is divided into three parts. The first part mainly introduces the global economic outlook. Then I will introduce the medium-term, the recent situation of Chinese economy. Finally I will explain what challenges would China face in the medium-term, and what is the impact for China.
First, Let’s take a look at the prospects for the global economy, ( PPT ) the two pictures on the left, the blue curve represents the fixed capital investment and personal consumption, which have begun to decline in developed economies. On the right side of the blueprint, the industrial output value, among developed economies is also in decline. This means that, for emerging markets, demand is weak.
From the red curve we can see that the global trade is in slow, too. This is bad news for everyone, especially for emerging economies. The growth rate of personal consumption, the investment in fixed assets, as well as industrial output is down in the second quarter.
Why does the demand in the developed economies decline? The first reason is the developed economies have relatively large fiscal deficits, some depend on increasing the income to reduce government spending, and we call it the fusion or financial integration. This will promote the development of the entity economy.
In addition, the financial system in developed countries including lending and so on is still rather weak, especially in the United States, coupled with the impact of the European debt, so the market is confused to the policy of the world. (PPT) The red line in the two pictures represents the policy uncertainty in Europe and American region. The green line represents the volatility of the stock market.
We can see that, the trend of the green line is similar to the red line. Basically, the policy uncertainty in the United States and Europe is still relatively high, which will make the market more cautious, and more conservative.
We have just mentioned three problems, the first is the financial integration, the second is the financial system is relatively weak, and the third is the policy uncertainty.
These three factors will be recovered slowly predicted by IMF, especially in developed economies. The rate of economic growth was only 1.2%, in 2012, in America. The GDP growth rate is 2.2%. The euro zone will decline. The emerging economies and developing economies are relatively high in growth, but lower than in 2010.
We forecast the growth rate of GDP in China will be 7.8%, and 8.2% in 2013. On the other hand, downside risks are rising. (PPT) These two pictures below show the euro area and America’s prospects. The euro zone as you can see will have a recession in 2012, and this possibility may reach to 80%. When the real downside risk appears, the first thing is to take measures to solve the crisis in the euro area. For example inside of the area, fix the stability mechanism to make the integration for the banks and finance.
The second is for financial policy. America has to establish the extra space to solve the fiscal cliff and the debt ceiling at present, so we think that the integration should be more moderate in America, in order to not to affect the real economy growth. On the other hand, America should also introduce the feasible strategy to give appropriate adjustment and support for mobility. In many developing economies, the supply is also very important, especially when the real economy demand is relatively weak. For the demand in the developed economies, rebalancing measures should be achieved in emerging economies, which will increase the domestic demand.
So we see the prospects for the future global economy, and we also notice that the global economic recovery will be slow, and there will be a highly downside risk, so the developed economies should cope with these risks.
I will show the economic situation of China next. One month ago, we were worried about the Chinese economy, but the market had been flat. The data had showed that Chinese economy had begun to rebound by September. Chinese economy was guided by the government`s policy, at the beginning. China wanted to make GDP growth slow to reduce the risk of overheating.
(PPT) we can see the fixed asset growth rate from the chart on the right, in the investments of state-owned enterprises declined sharply at the beginning in 2011. This slowdown triggered by economic policy caused the downside risk.
We did not see obvious rebound in 2008, and 2009, and the euro zone also declined, so China had been hit, and even experienced negative growth for the exports to Europe and Japan, so the export related investment was cut. This is also a downside risk to the Chinese economy.
The pictures on the left and right side show monetary policy relaxation, so we can see that new loans increased in 2012, but the policy was relatively mild, especially compared with those in 2009, and in 2010. The benchmark loan, and deposit rates in the people`s Bank of China also changed. Now the situation has been different from the beginning of 2009. The government has seen the policy adjustment and the crunch of real estate, so the growth of 50% we saw in 2009 was totally different.
We believe that with appropriate response, Chinese economy has started the soft landing. Just as we have predicted, the rate of GDP growth is at 7.8%, and in 2013, it will be 8.3%. In addition, the CPI inflation will be reduced, and will maintain at a stable level.
The outlook for Chinese economy is relatively optimistic. Exports to America and Europe accounted for more than 50% in China`s overall exports. If China’s export is not good, it would impact on the real estate market and other areas of China; if the prices of houses fall by30%, the output will be decreased by 3%-4%, and the other will decline. So in order to deal with these potential risks, Chinese government introduced a number of policies, but I think the stimulus policies would not be carried out in 2008, 2009, and 2010. For the past 5 years the proportion of GDP has changed.
The credit ratio in the GDP is relatively not the same for China. In addition, the local government loans accounted for high level in the last few years, Chinese government will carry out some policies, of course. Now the debt of central government is relatively low accounted in GDP. For the next five years, the government debt in GDP will remain low, which will make the government make some budget stimulus policy. But we don`t think the Chinese stimulus policy will promote the domestic demand in the future, and this will make the government`s strategy is more sustainable.
I have just introduced Chinese economy, and we think that China has got a soft landing, and the Chinese government has done some stimulating strategies for consumption in the budget to deal with the downside risk.
(PPT) Next, with investment driving style Chinese economy has shifted to a more sustainable model. Let’s see how China will develop in medium-term. China has made a very good adjustment by seeing the diagram on the left. The increase rate of GDP has been adjusted from 7% to 3% in 2007, and the domestic demand had grown for the past ten years. The red curve is showing the household consumption, and the investment grown in this period, too. It also shows that Chinese economy was investment driving type at that time, and was not sustainable in some way. We also made some comparison on ratios of consumption and investment.
(PPT) Let’s look at the investment situation of local provinces. The investment will also be adjusted accordingly, when the external demand declines gradually. In addition, high investment rate also makes the unbalance of the rich and the poor. In 2008, the Gene coefficient of China reached 9% in the countryside, which could cause damages to Chinese economy. The investment driving model increases the demand for metals in a large scale in deed. It is only 10% in 2000, but now it has reached to more than 40%.
(PPT) You can see the Chinese mineral import situation from the slide here. The green line represents copper, and the red line represents iron. They all have increased greatly from 2006 till now. There has been a sharp increase in iron especially in 2009, and in 2010. The right side shows the balance of trade in goods. Most of the goods have surplus in the balance of trade, but to the metals, Chin is a net importer.
At the same time, we can see that the price indexes of the whole metal industry have been raised for the past ten years. We can see that the slowdown of Chinese economy. We can also see the prices have declined rapidly. The slowdown of Chinese real estate also has caused great influence to the metal prices. Some policies and measures are still to be taken by the government to promote the growth of domestic demand.
We also need to take corresponding measures, including the stimulation of investment, and looser credit. We believe in the “12th Five-Year “plan and we believe that we can achieve the corresponding goal in the next 3 years.
Thank you very much!
I would like to thank the China Mining for the opportunity to give this report, thank you!
（translated by TLRHVC）
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