Business Times - 07 Aug 2009
By ARTHUR SIM
(SINGAPORE) China bulls should turn the page now. Ben Simpfendorfer, chief China economist at the Royal Bank of Scotland, is 'more bearish than most' on the China story. In fact, he believes it is more 'a story about excess capacity'.
As such, he also believes that there is a chance that the Chinese economy could suffer a 'double-dip' in 2010.
He is not too impressed by the second quarter's 8 per cent GDP growth either, and estimates that about half of that can be attributed to the government's two trillion yuan (S$420 billion) stimulus package, which focused on public infrastructure spending.
China may be the largest manufacturer in the world but its factories 'are suffering a sharp fall' in global demand that is not being substituted by local demand.
'Exports are not a big driver of growth because they rely on a lot of imported components and parts,' Mr Simpfendorfer said. 'What is driving growth is the construction of export factories and the purchase of equipment to manufacture export goods. And this is very weak because factories are running below potential.'
The Chinese government could, of course, introduce a second stimulus plan to maintain growth at the current level. But Mr Simpfendorfer, who has lived in Hong Kong for 10 years and speaks Mandarin, said: 'The chance of a second stimulus plan is not high enough to make a significant change in my forecast.'
And while he believes investment in public infrastructure projects and a recent increase in private residential investment could support growth over the next two years, there will be an 'imbalance'.
He also questions the wisdom of simply targeting a percentage rate of growth, because if growth does slow, 'the temptation is to say, OK, we need more stimulus when the question (the government) should be asking is why growth is slowing'.
He wonders whether China is ready for a structural shift in global demand. 'If foreign consumers do not spend as much as before, China will need to respond - it needs to say some of these factories will never open again,' he said. 'When you talk to SMEs, anecdotally, a lot are really struggling, but this does not get captured by official figures because they are small and private.'
But Mr Simpfendorfer qualifies that while he believes growth in China may slow, 'it won't contract'. 'Maybe it slows to 6 per cent. Relatively it's still pretty good,' he said.
But the days of double digit growth are probably over and the sooner China and rest of of the world realises this, the better, it seems.
China may be the factory of the world, but he reckons that China should move out of manufacturing.
'When I say China should move out of manufacturing, what I am saying is that the east needs to produce less manufactured goods and more service goods.'
He hopes that this will result in better pay, working conditions and ultimately help drive private consumption too.
And it would also be good for the rest of the world. 'China's exports to the Middle East have now replaced the US,' he said. 'But this has led to job losses as a result, which is bad for social stability. If China does re-balance (its economy), some of the manufacturing would leave and go to Syria, for instance.
'If Syria were to capture just one per cent of the increase in China trade with Europe over the past five years, each year could add half a percentage point to its GDP growth.'
However this plays out, Mr Simpfendorfer said: 'I think the whole story about China propping up the global economy is false. The irony is that as the world's largest manufacturer, China produces most of what it needs. What it imports are raw materials to produce manufactured goods, and countries like Malaysia and Indonesia may benefit. For countries like Singapore, Thailand and Korea, the benefits aren't huge.'
By ARTHUR SIM
(SINGAPORE) China bulls should turn the page now. Ben Simpfendorfer, chief China economist at the Royal Bank of Scotland, is 'more bearish than most' on the China story. In fact, he believes it is more 'a story about excess capacity'.
As such, he also believes that there is a chance that the Chinese economy could suffer a 'double-dip' in 2010.
He is not too impressed by the second quarter's 8 per cent GDP growth either, and estimates that about half of that can be attributed to the government's two trillion yuan (S$420 billion) stimulus package, which focused on public infrastructure spending.
China may be the largest manufacturer in the world but its factories 'are suffering a sharp fall' in global demand that is not being substituted by local demand.
'Exports are not a big driver of growth because they rely on a lot of imported components and parts,' Mr Simpfendorfer said. 'What is driving growth is the construction of export factories and the purchase of equipment to manufacture export goods. And this is very weak because factories are running below potential.'
The Chinese government could, of course, introduce a second stimulus plan to maintain growth at the current level. But Mr Simpfendorfer, who has lived in Hong Kong for 10 years and speaks Mandarin, said: 'The chance of a second stimulus plan is not high enough to make a significant change in my forecast.'
And while he believes investment in public infrastructure projects and a recent increase in private residential investment could support growth over the next two years, there will be an 'imbalance'.
He also questions the wisdom of simply targeting a percentage rate of growth, because if growth does slow, 'the temptation is to say, OK, we need more stimulus when the question (the government) should be asking is why growth is slowing'.
He wonders whether China is ready for a structural shift in global demand. 'If foreign consumers do not spend as much as before, China will need to respond - it needs to say some of these factories will never open again,' he said. 'When you talk to SMEs, anecdotally, a lot are really struggling, but this does not get captured by official figures because they are small and private.'
But Mr Simpfendorfer qualifies that while he believes growth in China may slow, 'it won't contract'. 'Maybe it slows to 6 per cent. Relatively it's still pretty good,' he said.
But the days of double digit growth are probably over and the sooner China and rest of of the world realises this, the better, it seems.
China may be the factory of the world, but he reckons that China should move out of manufacturing.
'When I say China should move out of manufacturing, what I am saying is that the east needs to produce less manufactured goods and more service goods.'
He hopes that this will result in better pay, working conditions and ultimately help drive private consumption too.
And it would also be good for the rest of the world. 'China's exports to the Middle East have now replaced the US,' he said. 'But this has led to job losses as a result, which is bad for social stability. If China does re-balance (its economy), some of the manufacturing would leave and go to Syria, for instance.
'If Syria were to capture just one per cent of the increase in China trade with Europe over the past five years, each year could add half a percentage point to its GDP growth.'
However this plays out, Mr Simpfendorfer said: 'I think the whole story about China propping up the global economy is false. The irony is that as the world's largest manufacturer, China produces most of what it needs. What it imports are raw materials to produce manufactured goods, and countries like Malaysia and Indonesia may benefit. For countries like Singapore, Thailand and Korea, the benefits aren't huge.'
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