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China’s Economy and the NPC
Albert KeidelSenior Fellow, The Atlantic Council of the United States
March 17, 2010International Economics Program
The Carnegie Endowment for International PeaceWashington, DC
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GDP Inflation
GDP Growth
Percent (y-o-y)
Annual GDP Growth and Inflation, 1980-2009
3
Quarterly GDP Growth, Year-on-Year, 2008-09
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2
4
6
8
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Official Y/Y2008 2009 2010
% Quarterly Year-on-Year
10.7%
6.2%
10.6%
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Keidel Q/Q Keidel Y/Y2008 2009 2010
% Annualized
6.5%
16.4%
0.6%4.3%
Quarter-on-Quarter, Seasonally Adjusted
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PBoC Q/Q Keidel Q/Q2008 2009 2010
% Annualized
PBoC’s Seasonal Adjustments Differ Some
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PBoC Q/Q Keidel Q/Q2008 2009 2010
% Annualized
Even if Quarter-on-Quarter settles at 8% …
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Keidel Q/Q Keidel Y/Y2008 2009 2010
% Annualized Projections
11.6%
… headline Year-on-Year growth looks too high.
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PBoC Q/Q PBoC Y/Y2008 2009 2010
% Annualized Projections12.9%
… and PBoC estimates make it look even higher.
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Quarterly Trade, 2009-2010
Nominal Surplus %Bil. US$ Exports Imports Surplus Growth y/y2009 Q1 246 183 62 54
Q2 276 242 34 -40 Q3 325 286 39 -54 Q4 355 294 61 -46
2010.1-2 204 182 22 -50 Source: China Customs, with calculations
Chinese Quarterly Trade, 2009-10
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Monthly Trade and Balances, 2009-2010 Feb.
Nominal Surplus %Bil. US$ Exports Imports Surplus Growth y/y2009.01 90 51 39 103 2009.02 65 60 5 -41 2009.03 90 72 18 41 2009.04 92 79 13 -21 2009.05 89 76 13 -34 2009.06 95 87 8 -61 2009.07 105 95 10 -59 2009.08 104 88 16 -46 2009.09 116 103 13 -56 2009.10 111 87 24 -32 2009.11 114 95 19 -52 2009.12 131 112 18 -53 2010.01 110 95 14 -64 2010.02 95 87 8 58
2010.1-2 204 182 22 -50 Source: China Customs, with calculations
Chinese Monthly Trade Data, 2009-2010 February
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Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4Domestic Demand Foreign Trade GDP Growth
2008 2009
Percentage Points of Growth
Growth: Domestic & Foreign Demand, 2008-09
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Quarterly GDP component growth andgrowth contributions
year/year Total
% Real GDP Domestic Real Trade Domestic Real Trade
Growth Growth Demand Surplus Demand Surplus
2008 Q1 10.6 13.3 -16.6 11.9 -1.3
Q2 10.1 13.4 -18.7 12.0 -1.9 Q3 9.0 9.3 6.6 8.3 0.7 Q4 6.8 3.1 49.7 2.8 4.0
2009 Q1 6.1 3.2 59.1 3.0 3.1 Q2 7.9 11.0 -36.8 10.3 -2.4 Q3 8.9 14.9 -51.1 13.5 -4.6
Q4 10.7 16.9 -46.2 15.2 -4.5
2010 1-2 n/a n/a -51.4 n/a n/a
Source: Official data with calculations.
Quarterly GDP Component Growth and Growth Contributions, 2008-2009
Growth Rates (y/y) Contribution (% points)
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-2-101234 % Month-on-Month (seasonally adjusted, not annualized)
2008 20092007
2010
-202468
10
Ja
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% Year-on-Year (official headline rate)2008 2010
2007 2008
Month-on-month CPI inflation is up …To an annualized 12-percent rate.
How bad could this be? Maybe not bad.
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200
980
410
700
755
770
900
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700
985
900
0 200 400 600 800 1000 1200
Unaccounted for
Foreign Other
Asia Other
Europe
China
Japan
Other U.S. Investors
State & Local Gov'ts
Mutual Funds
Banks, pensions, Insurance &c.
U.S. Federal Reserve
Ownership of U.S. Debt, Late 2009 (rounded)
Billion US$
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Is the RMB too low? … or too high?!After the euro fell in July, 2008 China decidednot to let the RMB depreciate against the US$
6.5
7.0
7.5
8.0
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9.5
10.0
10.51.0
1.1
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1.7
1.8
2003 2004 2005 2006 2007 2008 2009 2010
Euro Exchange Rate (US$/euro) RMB Exchange Rate (yuan/US$)
US$ per Euro RMB per US$
Euro
RMB
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Foreign Surplus = Foreign Savings
In economics -- this identity is always true …… but, which causes which?
It is fashionable to say that the savings causes the surplus … but in China’s case, this is doubtful.
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Exports – Imports =
GDP – Domestic Demand
Foreign Surplus = Foreign Savings
Does GDP growth push up exports? …… or, does demand for exports pull up GDP?
Let’s focus on exports and GDP growth …
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Current Account Imbalances for the U.S., China and Rest of the World
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0
2
4
1960
1962
1964
1966
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1998
2000
2002
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2008
United StatesChinaRest of the World
Current Account Balance as Percent of U.S. GDP
United States
China
Rest of the World%
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U.S. Consumer Credit and Current Account Balance
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0
2
4
6
8
1980
1982
1984
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1988
1990
1992
1994
1996
1998
2000
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2008
China Current Account Balance (% of U.S. GDP)
U.S. Consumer Debt (%-points above 12% of GDP)
U.S. Current Account balance (% of GDP)
U.S. Current Account
U.S. Consumer Debt
%
China Current Account
20
Was this caused by the exchange rate?
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Exports Imports hi
Bil. US$ (log scale)
Exports
ImportsChina'sGoods& ServicesExports and Imports
140
210
310
460
690
1030
130
21
Where were the Surpluses?China is there too, but came to the party late …
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1990
1992
1994
1996
1998
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2008
Current Account Balances as Percent of U.S. GDPand U.S. Housing Price % Changes*
UnitedStates
China
%
Northern Europe, Non-mainland-China East
Asia and Oil exporters
% Change inU.S. Housing
Prices*
* Inflation-corrected (CPI-corrected) housing prices (source: www.clevelandfed.org)
