Cautious optimism prevails on China’s economy

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Wen Jiabao (温家宝), Chinese PremierWen Jiabao via Wikipedia

Comments come out in full force after prime minister Wen Jiabao addressed the National People’s Congress yesterday on China’s economy. Both leading analysts, Shaun Rein at Bloomberg and Arthur Kroeber at Investors.com remain critical but also cautious optimistic on where the economy is heading.
Kroeber sees that export might be down, but imports are dropping even faster, offering China a net gain:

“The pessimistic view is that China is essentially an export-driven economy and a fall in gross exports will lead to a big fall in investment spending and a big fall in wages, which will cause consumption spending to fall too,” said Arthur Kroeber, managing director of Beijing-based Dragonomics.”
The more optimistic view thinks that China has authentic domestic growth drivers, such as infrastructure and housing construction, and that there is plenty of money around to support construction spending.”
Chinese net exports (exports minus imports) are holding up extremely well,” Kroeber added. “Exports are falling, but imports are falling faster. The question becomes, which is more significant?”
Chinese exports tumbled 17.5% vs. a year earlier in January. But imports plummeted 43.1%, so the trade surplus has continued to rise.

For the coming years, China might have enough cash at hand to spend itself into the 8 percent GDP growth, but, Kroeber warns, that is not a strategy for the long run:

Still, with U.S. spending forecast to stay weak, China will struggle to grow 6% to 8%, Kroeber says.”
China has the cash to replace export demand with domestic construction demand for a year or two,” he said. “But in the long run, sustaining high growth will require some significant restructuring of the domestic economy.”

Shaun Rein underlines the confidence Chinese citizens have in their government and its policies, but warns for job creation a different kind of policies are needed than focusing on infrastructure, like the central government did in the past. Here ia Shaun Rein at Bloomberg:

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