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May 5, 2008 Source:  www.AsiaEcon.org Despite predictions that China's economy would slow down in 2008, it actually has been doing quite well in areas such as bank profits and sovereign wealth.

May 5, 2008

Source:  www.AsiaEcon.org

Despite predictions that China’s economy would slow down in 2008, it actually has been doing quite well in areas such as bank profits and sovereign wealth. The slow down was predicted to be caused by inflationary pressures early in the year, which were to decline later in the year due to policies made to impede inflation, and came about despite a 10.7 percent predicted growth amount. The National Bureau of Statistics said that China’s economic growth slowed to 10.6 percent for the year with the Consumer Price Index continuing to be at a 12-year high.

However, being that it is the world’s fourth largest economy, China’s economy has shown a 10 percent GDP growth despite a global economic slowdown. This growth is lower than it was for the same period last year and for 2007 as a whole. The upcoming Summer Olympic Games in Beijing and the credit crunch in the United States are also said to be causes for the slowdown in the Chinese economy growth, in addition to slower export growth and the worst winter China has seen in fifty years.

The resiliency of China’s economy is shown in the status of its bank profits in a time of slow growth. The Bank of China had a first quarter profit this year that rose 85 percent, mainly due to loan growth and lower taxes that outweighed losses in investments. The tax rate for Chinese companies has been cut to 25 percent and the outstanding amount of loans given by the Bank of China is now at CNY 2.98 trillion. The net income was at CNY 21.7 billion and it has reduced holdings. There used to be concern over the Bank of China’s sub-prime exposure, perhaps for the same reason that the growth was expected to slow, but that concern has been eased as investors become more aware of China’s holdings. However, the Chinese government is trying to stop loan growth after seeing that overheating and inflation are two risks facing the economy this year. The reserve rate is at a record high of 16 percent, and lending for domestic banks has been capped at the 2007 amount. The biggest concern is to what extent the economic slowdown will hurt the banks’ profit and asset quality.

Another aspect that remains strong in China’s economy is its amount of sovereign wealth funds. China is the operator of the largest fund at USD 1200 billion, and has been that way for awhile. Financial weight has shifted from the West to the East, especially to China and other Asian countries. 

China’s economy is continuing to grow faster and faster, and its strength and economic boom is predicted to last until 2020. Even though growth is slowing down slightly now, overall it has grown 9.88 percent annually over the past 30 years. Experts say there is no need to worry that the short-term setbacks will affect the long-term economic boom. There is still much room to expand and deepen exports, which is important for the economy, and investment in rapid urbanization will help. The bigger population workforce is helping as well.

Source:  www.AsiaEcon.org

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Source: www.asiaecon.org |

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