Eight Percent Growth And Damn The Torpedoes

Beijing has set itself a target of 8% GDP growth for the year and by hook or by crook it will get there.

First quarter growth, announced earlier this week, came in at 6.1%, its slowest pace since quarterly GDP numbers were first made public in 1992, down from 10.6% in the same quarter a year earlier and the 6.8% rate in the fourth quarter. But with much of the rest of the world, read the country’s export markets, in recession, as Prime Minister Wen Jiabao said today at an annual gathering of government and business leaders on Hainan, the economy is better than expected.

That is is not worse is down to the 4 trillion yuan stimulus package announced last November and Beijing’s ability to burst through the credit crisis that has paralyzed lending elsewhere by getting its banks to make loans. Bank lending has soared since the fourth quarter, pouring money into state-backed infrastructure projects. Fixed asset investment, which accounted for more than 40% of GDP in 2008, was up 28.8% in the first quarter (vs, 24.6% in the same period a year earlier).

There seems to be plenty of liquidity in the banking system and the risk of bad loans containable. Consumer spending is holding. Industrial production was reported to be up 5.1% in the first quarter–though industrial use of electricity, usually a good proxy for industrial production–fell 8.4% in the quarter according to the China Electricity Council. Assuming both numbers are right, that could point to private investment remaining stalled, though, which would mirror personal consumption. But, all in all, there is enough there to believe that the slowing of growth bottomed in the first quarter. The unknown, given the doubts over domestic private sector demand, is whether recovery is sustainable without growth restarting in the U.S. and European export markets, or whether it will require a second heft dose of government stimulus money to hit that 8% that will be hit.

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