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Issue Report

Collection of full-length papers and in-depth analysis of economic and management issues.

Possibility of China's Early Recovery and Implications

Possibility of China's Early Recovery and Implications

OM Jung-Myung

July 14, 2009

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Originally released on June 3, 2009

Indicators show strong rebound

The Chinese economy, which was expected to face a hard landing after the 2008 Beijing Olympic Games, recorded a steep deceleration in year-on-year GDP growth within the 6% range for the past two quarters, very low by Chinese standards. However, despite a sharp downturn in export growth, China is now showing signs of a strong rebound. Quarter-on-quarter GDP growth, which conveys trends more accurately, bounced up to 6.5% in the first quarter of 2009, up from 3.5% of the previous quarter. On a quarter-on-quarter basis, China is now expected to achieve more than 8% growth in the second quarter.

The recovery process is further confirmed by major leading indicators, which all point to an earlier than expected recovery. New loans have grown 176% on a year-on-year basis from January to May, the Purchasing Managers' Index (PMI) rose to 53.2 after rising continuously for eight months and the Composite Leading Indicator (CLI) has maintained its upward trend. The size of new loans, in particular, rose the fastest as of late, surpassing the 2008 total of 4.9 trillion yuan and leaping to 5.2 trillion yuan in a mere four months. In short, domestic investment and consumption growth have led the economic growth so far this year, offsetting the negative impact of lower exports.

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