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January 27, 2010

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Home » Opinion » Foreign Views

China's engine powers East Asian recovery

January 27, 2010, Wednesday | Print Edition

EAST Asia's rebound from the global downturn over the course of 2009 was quicker and more robust than in other parts of the world.

China led the global recovery in industrial production, with contributions to growth from the high-income OECD countries emerging only later in the year.

The recovery in East Asia was underpinned by domestic stimulus programs put in place by a number of economies, most notably by China; a shift from large inventory reduction to restocking by firms; and a return to positive growth in exports and production by the second quarter of 2009.

Against this background, GDP losses for East Asia were limited in 2009, with current growth estimates placed at 6.8 percent, down from 8 percent in 2008. China grew by an estimated 8.4 percent during the year, while performance in Indonesia (4.5 percent) and Vietnam (5.5 percent) was strong.

When China is excluded from the 2009 growth estimates, GDP numbers for the remainder of the region offer a better reflection of the crisis, with an advance of just 1.3 percent following 4.8 percent growth in 2008.

As the global downturn took hold across East Asia in late 2008, many developing countries, together with major developed economies, began to implement large-scale fiscal and monetary stimulus measures to support domestic demand and to counter the drag from the collapse of export markets.

The Chinese stimulus package is of special note; it entails some US$575 billion to be spread proportionately over time from late 2008 through 2010, financed in part by a surge in credit expansion, with total new lending equivalent to 30 percent of GDP in 2009.

Elsewhere in the region, government deficits (as a share of GDP) increased significantly, reflecting both automatic stabilizers and countercyclical measures.

Over the course of 2009, East Asia's stimulus measures began to bear fruit, supporting incomes and helping to boost household spending, underpinning infrastructure development though public investment outlays, and providing support for the financial sector.

China's stimulus had region-wide impacts, by boosting demand for East Asian exports. China's infrastructure outlays also underpinned demand for regional commodities and raw materials used in construction, from countries such as Indonesia, Papua New Guinea, and Lao People's Democratic Republic (as well as Australia).

Rising consumption

As replenishment of inventories got under way, firms in China began to restock parts and components from regional suppliers, notably electronic goods from countries such as Malaysia and Thailand. And rising Chinese consumer expenditure stimulated demand for a variety of consumer durable goods across the region.

Although trade conditions improved over the course of 2009 as Chinese imports recovered, regional export volumes (goods and services) dropped 13.5 percent during the year, while imports fell 12.1 percent, leading to a narrowing of the aggregate current account position from surplus of 8.5 percent of GDP in 2008 to 6.9 percent for 2009.

This was aided in particular by a sharp decline in China's current account surplus, which fell from 9.8 percent of GDP in 2008 to 6.4 percent during the first six months of 2009.

Momentum underlying economic activity in the region should be sustained, as a gradual decline in the effects of domestic stimulus measures is countered over the course of 2010 by the return to growth (albeit moderate) in East Asia's main OECD export markets.

But contrasted with earlier episodes of global downturns (for example the 2001-03 "dot-com" bust), the rebound and recovery path of GDP in East Asia is expected to be more muted, reflecting weaker global demand and less buoyant financial conditions.

Continued strong advances in China's domestic demand, and associated imports, should play an important role in underpinning a second export-led revival phase for the remainder of the region.

At the same time, world trade growth is anticipated to revive from the 14.4 percent decline of 2009 to a gain of 6.2 percent by 2011. Against this background, East Asian export volumes are forecast to advance by 6.6 percent in 2010 and 8.8 percent in 2011. The regional current account surplus position is anticipated to moderate from 7.1 percent of GDP in 2009 to 6.4 percent by 2011, reflecting an increased contribution to overall growth from domestic demand.

(The article is adapted from the latest World Bank report titled "Global Economic Prospects 2010.")

Foreign Views


 

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