January 23, 2010
The Nation
CHINA, which is expected to overtake Japan this year as the world's second largest economy, is putting the brakes on its turbo-charged growth.
The world's most populous nation of 1.3 billion reported a breakneck year-on-year growth of 10.7 per cent for the fourth quarter of last year.
Its December 2009 inflation also jumped to 1.9 per cent from a negative inflation last July, while bank lending rose sharply last year.
Bubbles are brewing in its vast property sector and China's central bank has signalled that it is on the way to tightening the country's monetary policy.
On a quarter-on-quarter basis, China's GDP growth had slowed down from 10 per cent in the third quarter to 8.5 per cent in the fourth quarter of 2009, according to a DBS Group report.
The slowdown appears to have followed China's winding down of its massive economic stimulus package worth US$600 billion (Bt19.8 trillion) launched early last year.
According to the report, fixed-asset investment has gone nowhere since April/May 2009. Secondly, loan growth dropped by half last June to about 16 per cent from 34 per cent in mid-2008.
Third, the government's budget deficit, which provided a lot of stimulus between June 2008 and June 2009, started to disappear.
The report also argues that China, in fact, started its exit strategy seven months before anybody became aware of it, while the recent interest rate and bank reserve-requirement hikes are just continuations of this trend.
China's monetary policy will further be tightened as inflation has risen from 1.9 per cent year on year in December from 0.6 per cent in November.
Given this, interest rates will likely go up in the third quarter, dampening the domestic demand as China further withdraws its fiscal stimulus programme.
Overall, this could affect China-bound exports from other Asian economies, including Thailand, which has seen its shipments to the Middle Kingdom rise at a rapid pace in the past years.
For this year, the Bank of Thailand's GDP projection is a positive growth of 3.3 to 5.3 per cent as the Thai economy contracted 2.7 per cent in 2009.
Given a slowing Chinese economy and relatively weak recoveries of the US, the euro zone and Japan, Thailand's 2010 GDP growth may not be as strong as previously thought, largely because exports still account for more than 60 per cent of it.
However, the government's Bt1.43-billion Thai Khemkhaeng economic stimulus package remains intact for 2010-2011.
In addition, the tourism sector appears to have recovered since December.
As a result, Prime Minister Abhisit Vejjajiva expressed confidence that growth could still be in the range of 3 to 3.5 per cent despite increased external uncertainties.
Another positive development is that on January 1, China and the six original members of Asean - Thailand, Malaysia, Indonesia, Singapore, the Philippines and Brunei - started to enforce the zero import tariff scheme, covering more than 90 per cent of products, to further promote intra-regional trade.
The scheme will only cover the initial six countries for the first five years, after which it will be joined by Vietnam, Laos, Cambodia and Burma, creating the world's largest free-trade area with nearly 1.9 billion people.
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