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China says 2009 growth even faster than thought
Associated Press - July 2, 2010
Joe McDonald, Beijing – China's economy grew even faster in 2009 than previously reported, adding to concern the flood of stimulus spending and loans that drove its rebound left a dangerous glut of unneeded factories and other assets.
The government raised its estimate of 2009 growth on Friday from 8.7 percent – already the fastest among major economies – to 9.1 percent, boosting China's economic output to the equivalent of $4.98 trillion. That suggested Japan clung to its title as the second-largest economy with just under $5.1 trillion in output.
Beijing propelled its recovery from the global slump with a 4 trillion yuan ($586 billion) stimulus and record 2009 bank lending of 9.6 trillion yuan ($1.4 trillion). But communist leaders worry that drove overspending on factories and other facilities, which could lead to economic problems if producers are forced to slash prices in glutted markets or cannot repay bank loans.
"There definitely are risks of overcapacity from all this investment," said Citigroup economist Ken Peng. He said Beijing is likely to have to step in and repay at least some debts for overextended state companies or local governments.
Makers of steel and textiles are likely to be hit hardest because they have the biggest oversupply and foreign demand for their goods is weak, said Lu Zhengwei, senior economist for Industrial Bank in Shanghai.
Steel producers, which expanded output as demand from stimulus-financed construction projects surged, have 16 million tons of unsold stock, state television said Friday. It said mills are selling steel at prices below cost.
"The problems in the steel and textile industries will have a clear negative impact on the Chinese economy," Lu said.
Business groups have cautioned that China might face a protectionist backlash from the United States, Europe and other trading partners if its overcapacity leads exporters to cut prices at a time of weak global demand.
The government also has warned of overcapacity in cement, glass, polysilicon used for solar panels and wind power equipment. It says new facilities must meet higher environmental standards and it will shut down small steel mills.
The Cabinet is trying to promote industrial consolidation and the closure of outdated steel mills and other facilities, and announced Thursday that it will promote mergers among Chinese companies. Authorities said they wanted companies to use stimulus money to improve technology and are trying to force older facilities to close, often triggering resistance by local leaders who object to job losses.
"Of course when you have newer, better capacity, the old capacity might not go offline, so I think the government is trying to stamp that out," Peng said.
Beijing routinely revises economic growth estimates, and the National Bureau of Statistics said Friday's figure was the result of data gathered since its initial announcement in January.
The bulk of the increase came from service industries, a positive sign for government efforts to reduce reliance on manufacturing to drive growth.
Last year's heavy spending prompted fears of a surge in inflation. But that has turned to concern about slowing growth as the effect of the stimulus wears off and Beijing imposes lending curbs to cool a sharp rise in housing prices.
Economic growth surged to 11.9 percent over a year earlier in the first quarter of the year and inflation hit 3.1 percent in May, exceeding the official full-year target of 3 percent. But indicators of manufacturing and investment show activity slowing and inflation pressure easing.
On Friday, Goldman Sachs lowered its 2010 growth forecast from 11.4 percent to a still robust 10.1 percent, citing tighter credit.
Signs of an impending slowdown have triggered a plunge in Chinese stock prices. The benchmark Shanghai Composite Index fell to a 14-month low this week, off 27 percent since the start of the year.
[Associated Press researcher Bonnie Cao contributed to this report.]
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