China to Miss Growth Target

When Chinese officials acknowledge that China is likely to miss its official growth target of 8%, I’m inclined to believe them:

Jan. 12 (Bloomberg) — China’s economic growth may fall short of the government’s 8 percent target for creating jobs and preventing social unrest in the world’s most populous nation, two top officials said.

Meeting the target will be “exceptionally arduous,” Liu Mingkang, the chairman of the China Banking Regulatory Commission, said in Beijing today. There are downside risks to the goal, central bank governor Zhou Xiaochuan said separately in Basel, Switzerland.

Premier Wen Jiabao pledged yesterday to announce extra stimulus measures before the legislature meets in March, to add to a 4 trillion yuan ($585 billion) growth package. Waning export demand has led to protests by fired employees, an exodus of 600,000 migrant workers from the manufacturing hub of Guangdong, and an estimated urban unemployment rate of more than 9 percent.

“It’s the first official acknowledgement that even the modest 8 percent growth target may not be achievable in 2009,” said Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong. “The flip side is that we are likely to see a more aggressive policy response in coming months.”

China’s growth may slow to 5 percent this year, less than half of the 11.9 percent expansion in 2007, according to Royal Bank of Scotland Plc. That would be the weakest pace since 1990 and the aftermath of the Tiananmen Square crackdown.

That’s below the figure that Chinese officials have said is required to prevent social unrest in the country.

China’s economic slowdown is more bad news for the beleaguered U. S. auto industry, particularly GM which has the strongest presence in China among U. S. auto companies:

BEIJING -(Dow Jones)- China’s automobile industry sales growth slowed to 6.7% in 2008, putting an end to at least five years of double-digit growth, data from a semi-official industry group showed Monday.

Passenger vehicle sales rose 7.27% to 6.76 million units last year, the China Association of Automobile Manufacturers said, without giving the year-earlier figure.

Sales of commercial vehicles rose 5.25% to 2.62 million units, CAAM said.

Following a strong 21.8% growth in 2007, 2008 started off with robust double- digit monthly sales increases in the first half of the year.

However, as a global economic slowdown impacted China, auto sales fell 11.64% in December to 741,600 units, CAAM said. Passenger vehicle sales for the month fell 7.99% to 584,600 units, and sales of commercial vehicles in December plummeted 23.03% to 157,000 units.

The economic slowdown resulted in weaker sales for some automobile makers in China. In 2008, General Motors Corp. (GM) posted a 7% decline in sales at Shanghai General Motors Corp., its flagship passenger vehicle joint venture.

Ford Motor Co. (F) also posted a 5.9% decline in 2008 sales at its passenger vehicle joint venture, Changan Ford Mazda Automobile Co. Including sales at its commercial vehicle joint venture with Jiangling Motors Corp., Ford sold 306,306 units in China last year.

The question now is how the Chinese authorities will respond to the situation. If they respond by building their way out of their economic downturn, I believe it will be a good thing for the Chinese and, possibly, for us as well. If they respond by trying to export their way out of their downturn, it would threaten igniting a trade war in which everybody could lose. The signals over the last couple of months have been mixed and we’ll just have to wait and see.

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Dave Schuler
About Dave Schuler
Over the years Dave Schuler has worked as a martial arts instructor, a handyman, a musician, a cook, and a translator. He's owned his own company for the last thirty years and has a post-graduate degree in his field. He comes from a family of politicians, teachers, and vaudeville entertainers. All-in-all a pretty good preparation for blogging. He has contributed to OTB since November 2006 but mostly writes at his own blog, The Glittering Eye, which he started in March 2004.