Category Economy
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China Economy – Government to Stimulate Domestic Demand

11 September 2012 Coface

Coface, the international credit insurer, projects 7,5% GDP growth in China this year and says that while China’s economy is expected to further contract in the first half of 2012, it expects the contraction to reverse in the second half of 2012. But Chin

Uncertainty over external political and economic events, such as the Eurozone crisis which is expected to end its contraction in Q4 2012, will affect China’s future economic growth, says Coface.

Bearish US economic growth is expected to continue through the duration of the presidential election, affecting China. The Chinese government will endeavour to continue restructuring the economic environment, focusing on developing domestic consumption in 2012.

Given that 2012 is a handover year for Chinese government’s top leadership team, a stable political transition for the Chinese economy is crucial, and as such Coface anticipates that the Chinese government will retain its mix of “prudent monetary policy and proactive fiscal policy”, while the central bank may further lower the requirements for bank reserve levels.

Coface has identified five high risk sectors in terms of credit defaults:

* Construction & Construction Materials, Iron & Steel and related trading and metal manufacturing industries.
* Textiles, Clothing, Furniture, and Leather
* Shipping and Ship Building
* Paper and Printing
* New Energy – PV Solar Power, Wind Power and LED

Summary of China’s Economic figures

GDP Growth

China’s full-year GDP growth for 2011 was 9,2%; growth in the Q4 slowed to 8,9% from Q1 9,7%, Q2 was 9,5% and in Q3 GDP growth was 9,1%.

Fixed asset investment

2011 fixed assets investments increased by 23,8% year-on-year, but the rate of growth was dramatically slower year-on-year.

Trade surplus

China’s 2011 trade surplus decreased by US$26,4-billion from 2010; exports rose 20,3% and imports were up 24,9%. Import growth exceeded export growth.

New loans

Chinese lenders extended 7,5-trillion Yuan in new loans in 2011, down 390,1-billion from the previous year.

Money supply

Ending December 2011, M2, the broadest measure of money supply, rose 13,6% compared to December 2010; M1 was only up 7,9% at the end of 2011 compared with an increase of 21,2% the previous year.

Customer’s financial difficulty is the main reason for default payment

Payment default is largely due to downstream buyers’ financial difficulty, especially in 2011. Defaults were triggered by poor cash flow of buyers who faced fierce competition and were unable to find funding resources.

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