It now looks like the Chinese government did its part to help save the world. Early in 2009, I wrote that 4 conditions were needed to get out of the economic mess: freer credit conditions, stabilization of the housing market, a proper balance between consumer spending and saving and China growing more than 7%. Only the housing market has yet to show stabilization. But we have only stopped the freefall, and at such a cost that future growth may have been significantly constrained.
The Chinese government’s massive stimulus spending, which has lifted domestic demand amid a severe export slump, should help its economy grow at a pace of 7.5% this year and 9% in 2010, says a report prepared by an association of leading financial institutions.
The forecast by the Institute of International Finance, whose members include some 370 of the world’s largest commercial and investment banks, is shy of Beijing’s own target for full-year growth of around 8% but more optimistic than some other forecasts. The World Bank has forecast about 6.5% growth for China’s economy this year, though its president, Robert Zoellick, said on Tuesday that China’s economy could grow faster than expected.
The IIF said in a report that China’s economy has seen a quick turnaround from the end of last year, when its government unveiled a four-trillion yuan stimulus program and ordered banks to help finance public works projects. Those measures helped the Chinese economy in the first quarter, and the IIF now expects growth in the second half of the year to exceed 8%.
Yet despite the expected upturn, the IIF believes the Chinese government will be unwilling to let the Chinese yuan appreciate against the greenback until the export sector sees some recovery. It says the Chinese yuan likely will edge up 1% to 6.8 yuan to the dollar at the end of the year, and 3% in 2010 to 6.6 yuan to the dollar.(…)
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