While GDP growth in the United States was a miniscule 0.6% on an annualized basis in December, it is a vastly different story in China. For the fourth quarter of 2007, China grew its economy at a staggering rate of 11.2%, a small decline from 11.5% in the third quarter, but still at rate that is impressive. For 2007, GDP growth in China was equally impressive at 11.4%, which is well above Western standards.

To combat the growth, the People’s Bank of China (PBOC) increased interest rates on six occasions in 2007 and recently increased the domestic banks’ reserve requirement ratio to 15%, the 11th increase since the start of 2007. The PBOC hopes its strategy will slow down the access to money and hence the GDP, which the government predicts could fall to eight percent this year, although it has failed in previous years. Moreover, the World Bank predicts that China will grow at 9.6% this year.

In addition, there are thoughts that a slowdown or recession in the United States could reduce the demand for Chinese goods and services and hence drive down China’s GDP. The slight strengthening of the Chinese Yuan against the U.S. dollar is having little impact. The International Monetary Fund estimates that a slowing in the U.S. could impact China’s GDP growth, but that it could still be in excess of 10%.

A look at the most recent China trade surplus for January does not indicate a slowdown as of yet. In the month, the country’s trade surplus surged 22.7% year-over-year driven by strong foreign demand for exports. Again, the excessive trade surplus will pressure China to act to strengthen its Yuan or we could see trade barriers enacted by China’s trading partners.

The problem with trade barriers is that China can reciprocate and that trade barriers could drive up domestic inflation for goods as they become more expensive to buy.

And don’t let us forget that China has a massive $1.53 trillion in reserves. China holds lots of U.S. investable assets such as bonds, so if they decided, the country could divest its U.S. bonds, which could impact the U.S bond market and force higher interest rates. This is not something we want to see happen unless Warren Buffett decides to step in and help, but then even he does not have that kind of capital.

China Still in a Growth Spurt — Calling the Trend Column, by George Leong, B. Comm.

While GDP growth in the United States was a miniscule 0.6% on an annualized basis in December, it is a vastly different story in China. For the fourth quarter of 2007, China grew its economy at a staggering rate of 11.2%, a small decline from 11.5% in the third quarter, but still at rate that is impressive. For 2007, GDP growth in China was equally impressive at 11.4%, which is well above Western standards.

To combat the growth, the People’s Bank of China (PBOC) increased interest rates on six occasions in 2007 and recently increased the domestic banks’ reserve requirement ratio to 15%, the 11th increase since the start of 2007. The PBOC hopes its strategy will slow down the access to money and hence the GDP, which the government predicts could fall to eight percent this year, although it has failed in previous years. Moreover, the World Bank predicts that China will grow at 9.6% this year.

In addition, there are thoughts that a slowdown or recession in the United States could reduce the demand for Chinese goods and services and hence drive down China’s GDP. The slight strengthening of the Chinese Yuan against the U.S. dollar is having little impact. The International Monetary Fund estimates that a slowing in the U.S. could impact China’s GDP growth, but that it could still be in excess of 10%.

A look at the most recent China trade surplus for January does not indicate a slowdown as of yet. In the month, the country’s trade surplus surged 22.7% year-over-year driven by strong foreign demand for exports. Again, the excessive trade surplus will pressure China to act to strengthen its Yuan or we could see trade barriers enacted by China’s trading partners.

The problem with trade barriers is that China can reciprocate and that trade barriers could drive up domestic inflation for goods as they become more expensive to buy.

And don’t let us forget that China has a massive $1.53 trillion in reserves. China holds lots of U.S. investable assets such as bonds, so if they decided, the country could divest its U.S. bonds, which could impact the U.S bond market and force higher interest rates. This is not something we want to see happen unless Warren Buffett decides to step in and help, but then even he does not have that kind of capital.

Tags: China's Growth, chinese economy, Economic growth