China powers forward as stimulus kicks in

By Clifford Coonan,Henan Province
Sunday 23 October 2011 05:41

A skyline dotted with cranes, new banks, mobile phone shops along the streets, and thousands of new cars hitting the streets every month. It sounds like Britain in the 1990s, or the China of three years ago. In fact, this is Zhengzhou, capital of China's most populous province, Henan, and all this is happening today. It is as if the global recession was taking place on another planet.

China's economy expanded by a powerful 8.9 per cent in the third quarter, driven overwhelmingly by massive government stimulus spending that has helped the nation to spearhead recovery from the global recession.

"We can say with certainty that achieving 8 per cent GDP growth this year is completely assured. Without doubt," said Li Xiaochao, spokesman for the National Bureau of Statistics, which released the figures.

Growth in the world's third-largest economy accelerated from 7.9 per cent in the second quarter, and for the first nine months of the year was 7.7 per cent, according to the bureau. While the effects of China's 4 trillion yuan (£354bn) stimulus plan can be seen in every town and city in the shape of major infrastructure projects, you can also see it in the shops and car dealerships.

The Buick dealership on Zhengzhou's outskirts is doing brisk business, and so it should. There are lots of new cars on the road, as people buy cars on the back of tax breaks as part of the stimulus plan, and they are going for Volkswagens, Buicks and a few Chinese-made cars.

China's car market has outstripped the US to become the world's largest, with sales up 34 per cent to 9.66 million vehicles in the first nine months of the year. Shops are doing the kind of business that other countries can only dream of, with retail sales up 15 per cent in the first three quarters of the year.

There are difficulties, of course. Fears of over-reliance on government spending abound – nearly 6.2 percentage points of China's 7.1 per cent GDP growth in the first half came from investment. The investment bank Goldman Sachs said quarter-on-quarter growth had in fact slowed to about 10.2 per cent from the second quarter's annualised pace of 16.5 per cent.

Unemployment remains high – in some cases you have a mixture of labour shortages and unemployment, because many of the factory workers laid off in the early days of the recession are reluctant to come back until the recovery is in full swing. Some workers in the southern industrial cauldron of Guangdong or the central industrial provinces such as Henan are complaining how they are working shorter hours for less money.

But it is looking increasingly as if China's massive stimulus plan is paying off. The next step for China is to work out an exit strategy whereby it eases back on the heavy investment and lending – £767bn in new loans this year.

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