Growth slows but China is not collapsing

Analysis By Chris Hogg BBC Shanghai Correspondent

China's economy is weaker than it used to be, but still growing

The rest of the world had hoped that strong economic growth in China would create the demand to get the world's economy moving again.

But after five years of annual double-digit increases in China's gross domestic product, or GDP, it has slipped back to single digits.

This latest data suggests that China will not be such an impressive engine for global economic growth anymore, at least in the short term.

In the last three months of 2008, China's economy was 6.8% larger than it had been in the last three months of 2007.

Possible contraction

This calculation does not tell you what happened between the July-to-September, or third, quarter and the October-to-December, or fourth, quarter of last year.

I don't think the stimulus package will have much effect Wang Liang, the president of Shanghai Current Economics Research Institute

There is plenty of evidence to suggest that that was when businesses was really receiving a beating.

It is hard to be sure of what happened to growth over that period because of the way China releases these statistics, providing only year-on-year difference for each quarter.

There are certainly many analysts who extrapolate these figures to suggest that in fact GDP growth between the third and fourth quarter was extremely weak.

Some argue there might have been no growth at all, or even a contraction.

Limited effect

China has put in place a number of measures to try to boost growth.

The Chinese economy is slowing down, but this is not a hard landing Professor Sun Lijian, from Shanghai's Fudan University China's economic growth slows

In November the government announced a 4 trillion yuan ($586bn; £423bn) stimulus package, largely to be spent on infrastructure, health and social welfare.

Interest rates have been cut five times since September. Taxes lowered too.

But clearly more needs to be done.

"I don't think the stimulus package will have much effect," says Wang Liang, the president of Shanghai Current Economics Research Institute.

He points out that China is a vast country and the stimulus package is aimed predominantly at improving infrastructure in rural areas, many of them in western or central China.

"This spring, people are really going to feel the effects of the financial crisis strongly," he says.

"It's going to be really difficult for the economy to recover."

Crisis spreads

Officials admit the financial contagion has spread now from small and medium sized enterprises to larger firms, and from coastal provinces to China's heartland further west.

China no longer wants to just assemble cheap goods for export

Even those who are more confident that the stimulus package will help to boost growth say it will take time for the effects to be felt.

It probably won't show up in the GDP figures until the second half of this year.

Professor Sun Lijian, from Shanghai's Fudan University is one of the optimists.

He says he has not yet seen evidence of a serious trouble in China and argues that if economic activity had seized up, the stock market would have collapsed, the price of real estate would have fallen sharply and across the country enterprises would be closing.

Others insist that this, or something close to it, is already taking place, though the professor disagrees.

"The Chinese economy is slowing down, but this is not a hard landing," he insists.

"You can't look at it from a western point of view.

"In western countries, if a business doesn't make a profit, then its employees lose their jobs. In China it's different.

"The government will support a lot of businesses. As long as the government thinks it can afford it then the business will survive."

Complex products

He is right of course.

But the government cannot save every business in China, and with many economists advising that some of the factory closures are necessary "adjustments", as the country tries to transform itself from a supply led economy to a demand led economy, they might not feel they ought to.

China no longer wants to be the world's workshop, assembling cheap goods for export around the globe.

It wants to design its own products - electronics, cars, machinery, services - that it can sell at home and overseas.

But the most immediate problem the government faces is how to get through the next few months.

It has deep pockets. There is money for a further stimulus package, or for other measures to try to help individuals or businesses more directly.

But it is not simply a question of pulling a lever here, or pushing a button there to produce a quick result in a vast economy such as this one.

Are you in China? How have you been affected by the economic slowdown? Send us your comments and experiences.

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