China banking on domestic demand

After its GDP growth slows to 9% in the third quarter, China vows to take measures to boost the economy.

A policeman urges workers from Smart Union gathering outside a closed factory to leave, in the township of Zhangmutou, north of China's southern city of Shenzhen October 17, 2008. Distressed toy maker Smart Union Group said on Friday it was seeking to wind up operations and provisional liquidators had been appointed for the company. Workers gathered outside the Smart Union factory and the government building, demanding unpaid wages as the global economic crisis worsened the outlook for an industry already threatened by falling exports.   REUTERS/Bobby Yip   (CHINA) *** Local Caption ***  ZHA10_CHINA-TOYS-_1017_11.JPG
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BEIJING // China watched its GDP growth slow to nine per cent in the third quarter and vowed this week to take measures to boost the economy, which has been unable to escape the effects of the global financial crisis. "The growth rate of the world economy has slowed down noticeably. There are more uncertain and volatile factors in the international economic climate. All these factors have started to release their negative impact on China's economy," said Li Xiaochao, a spokesman for the National Bureau of Statistics who announced the figures on Monday. The economy grew 10.6 per cent in the first quarter and 10.1 in the second.

Economists also said slowing property sales, the shutdown of factories for the Olympics and declining demand from the West are to blame for the slowdown, which was bigger than expecteded. The effect of the current financial turmoil will be felt on the real economy rather than on China's financial system, said Stephen Green, a Shanghai-based economist for Standard Chartered. The crisis "is only going to be felt in exports".

The first signs of the slowdown in exports from China have already been felt. Several factories, including Smart Union, a large toy manufacturer and a client of Mattel, shut down and laid off 6,500 workers last week. Angry laid-off workers could be seen outside factory doors demanding their wages - a scene Beijing will be eager to avoid. China has already said it would address these issues and boost domestic demand to counter the effects of the world financial crisis on its economy. The statistics bureau said China should adopt "flexible and prudent" macroeconomic policies and increase the flexibility of macro controls to promote steady and rapid economic growth.

A statement posted on the government website on Sunday evening said China would increase export rebates for such products as garments and textiles. Transaction fees for home sales will also be cut to encourage people to buy apartments. The central bank has already cut its interest rate twice and other such measures are predicted for the coming months. Yet economists agreed the Chinese economy should hold out well even if growth is expected to continue to fall. "We are still seeing fairly strong growth in income. Retail sales were up 23 per cent, business investment is strengthening again and this is likely to continue? Overall figures are reasonably impressive and suggest the Chinese economy is maintaining a degree of resilience," said Glenn Maguire, a China economist with Société Générale. "I think we have to remember the bulk of growth in China is domestically determined, not externally."

* The National