Chinese growth heralds global economic spring?

It's full speed ahead again for China, whose economy is growing at a faster-than-expected 11.9%.

Last Updated: 31 Aug 2010

The good news from Beijing – plus perhaps the first properly warm and sunny days of the year so far - helped the FTSE to close at 5796.25 last night, its highest level for 22 months. Across the pond in New York it was a similar story, with the Dow Jones breaking 11,000 and the Standard & Poor’s 500 over 1,200 for the first time since Lehman’s went bust in September 2008.

Even the normally-reserved Ben Bernanke, chairman of the US Federal Reserve, was caught by the glass-half-full mood, telling Congress ‘It looks like we’re on the path to moderate recovery and that the risk of a double dip, while certainly not negligible, is less than it was a few months ago.’

That may not sound much like unbridled optimism to the uninitiated, but it’s about as upbeat as central bankers – never the most voluble of characters for obvious reasons - ever get.

So, are the tidings really as glad as all that, or is it just a case of spring fever? Well, the Chinese growth figure is the highest for three years and certainly a lot higher than anyone was expecting. Driven largely by a 35% rise in property investment, it’s well in excess of the critical 8% which the powers that be there reckon they need to achieve simply to maintain the status quo and ‘prevent social unrest.’ 

And of course, what’s good for China these days is good for the rest of us, and vice versa - especially America. The news has prompted speculation that the Chinese authorities might relax their control on the yuan, pegged to the dollar since 2008 and a source of increasing friction in recent months. If Chinese growth is really back to stay, then a stronger Yuan would help keep a lid on inflation.

But the figures should be treated with a degree of caution, not least because China doesn’t publish quarterly real-demand based GDP figures. This has led some economists to question the value of these latest numbers, because in isolation they shed little light on the direction of the underlying trend. There’s also the fact that the growth is year on year, and that the first quarter last year was very weak, indeed.

Add in the effects of the huge $1tn fiscal stimulus which the Chinese government has been pumping into the economy for the last year and the picture becomes clearer. Yes a return to brisk Chinese growth is good news, but given the huge effort that has gone into generating it would be a pretty poor do were it not so.


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