1
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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-5
0
5
10
15
20
19
80
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82
19
84
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86
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88
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90
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92
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94
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96
19
98
20
00
20
02
20
04
20
06
20
08
GDP Inflation
GDP Growth
Percent (y-o-y)
Annual GDP Growth and Inflation, 1980-2009
3
Quarterly GDP Growth, Year-on-Year, 2008-09
0
2
4
6
8
10
12
14
16
Qtr-
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Official Y/Y2008 2009 2010
% Quarterly Year-on-Year
10.7%
6.2%
10.6%
4
0
2
4
6
8
10
12
14
16
Qtr-
1
Qtr-
2
Qtr-
3
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4
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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
5
0
2
4
6
8
10
12
14
16
Qtr-
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PBoC Q/Q Keidel Q/Q2008 2009 2010
% Annualized
PBoC’s Seasonal Adjustments Differ Some
6
0
2
4
6
8
10
12
14
16
Qtr-
1
Qtr-
2
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3
Qtr-
4
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PBoC Q/Q Keidel Q/Q2008 2009 2010
% Annualized
Even if Quarter-on-Quarter settles at 8% …
7
0
2
4
6
8
10
12
14
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Keidel Q/Q Keidel Y/Y2008 2009 2010
% Annualized Projections
11.6%
… headline Year-on-Year growth looks too high.
8
0
2
4
6
8
10
12
14
16
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4
PBoC Q/Q PBoC Y/Y2008 2009 2010
% Annualized Projections12.9%
… and PBoC estimates make it look even higher.
9
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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-6
-3
0
3
6
9
12
15
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
12
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)
13
-2-101234 % Month-on-Month (seasonally adjusted, not annualized)
2008 20092007
2010
-202468
10
Ja
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Ma
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Ju
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Ma
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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.
14
200
980
410
700
755
770
900
500
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$
15
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
8.5
9.0
9.5
10.0
10.51.0
1.1
1.2
1.3
1.4
1.5
1.6
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
16
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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-4
-2
0
2
4
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
United StatesChinaRest of the World
Current Account Balance as Percent of U.S. GDP
United States
China
Rest of the World%
19
U.S. Consumer Credit and Current Account Balance
-6
-4
-2
0
2
4
6
8
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
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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-2
0
2
4
6
8
10
12
1990
1992
1994
1996
1998
2000
2002
2004
2006
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)
