A deep discussion about several hot issues of SM

the story of economic recovery—how far can China go alone？
Just like the hottest words“where is the button？”，3000 points、2000points or 1500points in 2008，now people used to talk about “where is the peak？”，2800points、3000points or higher？ It’s an interesting phenomenon. If we have a deeper view about this absolutely opposite phenomenon，we will find that behind these there exist a different economic situation which usually called by investors called as fundamentals aspects of the market. Although at this time last year the macro-economy environment is better than this year，at that time people hold views of economic downtrend expectations while nowadays they hold views of economic uptrend expectations. So “recovery” becomes another hottest word among government officials、investors and economists in China in almost all kinds of occasions. There is a common awareness or consensus that the worst time of the financial crisis has gone away for at least China. They insist that the PMI has been climbing up since last December，the FAI growth is beyond imagination where the YOY growth is nearly two times than that of last year，the consumer sector is keeping strong，the situation of import and export sector is also becoming better，…（if you want to know the detailed discussion about this problem，please refer to the paper《a continuous study of macro-economy： an analysis on 1Q economic data of 2009》in my space.）. People outside China have already paid much attention to this booming area. The international hot money chasing appreciation and profit begin to following to HKSAD. This makes the demand for HKD exceeds the supply. The HK financial authority has to conduct a public market operation in the HK foreign exchange market in order to keep the stability of HKD through the way of buying USD while selling HKD. Investors all over the world choose China as the place where enjoys priority to invest in. Some of them even expect china to lead the world getting out of economic recession. While on the other hand，people argue that china cannot be the leader for at least the following two reasons：firstly，the whole economic scale accounts only 7% of the global GDP. That is also smaller when compared with the United States or Japan. In a word，china is not powerful enough in terms of economic scale，not to mention its high-tech creativity，to become the hero rescued the global economy. China still has a long way to go forward. Secondly，except for economic problems，there exist so many troubling problems such as unemployment、unfair income distribution、high housing price、high medical treatment cost and overspread of official corruption for the Chinese central government to deal with. Under these worrisome circumstances，people have sufficient reasons to worry about the potential economic growth rate and growth quality. Maybe we can cite the old saying：The future is bright while the road is twisting.
As we acknowledge the fact that Chinese economy is getting recovery while the main OECD areas’ economy is still looking for the button, a question naturally follows：how far can china go alone？like the latest economic recession，the period between 1997 and 1999，this time the Chinese government adopt the same economic stimulate strategy to stop the GDP decline through invest heavily in the infrastructure sector. Doing this way，even the export decline with the outside economy recession，the growth in the FAI（investment demand） can make up the decrease in the net export which is usually called external demand，therefore assuming the domestic demand keep stable the total demand（GDP）which is the sum of those three demand will still grow at a certain rate depending on the scale of the government stimulating package. When the global economy get recovered，the external demand increased，then the government gradually reduce its financial deficit or even cancel financial stimulation package，the GDP growth come back to the way it used to be before the recession. This is the fact happened in the Asian financial crisis，will this method still works well this time after the global financial crisis outbreak？it’s a tough question！but one thing we can make sure of： That is the decrease in the external demand stroked china much more heavier than the last recession because the net export accounts for a higher proportion of the
GDP and the negative impact of the global financial crisis to the real economy is much bigger than that of the Asian financial crisis. This means that not only the whole stimulation package is bigger but also the stimulation time is longer than before. What’
s more， the private economy accounts for a large share of GDP than that before. So the answer is obvious：how far can china go alone depends on the following three factors：the first one is how long will the global economic recession continues；The second one is how bigger is the government stimulation package；The third one is how long will the private sector investment recovery.
Next we will discuss these three factors respectively briefly. In the first quarter of 2009，the GDP of Japan、US and German declined by 4.3%、6.4% and 4.5% respectively which are the worst economic performance since 1974 when the first oil crisis breakout. For those developed countries，perhaps the worst time has passed just like china，however，given the constructive global financial crisis，most economists expect the comprehensive economic recovery will come in not earlier than the 3Q of 2010. After that the GDP will grow at a lower rate when compared with rate during the period of 2003-2007 for a few years. So the external demand which china heavy depends on especially since entering the WTO will no longer contribute as much as before because people in developed countries begin to change their living style to save more money while spending less. That means a structural turning point of the usual developing path of china has already appeared. Maybe the central authority has to accept a lower growth rate if eventually the export level cannot reach that high level. As for the financial stimulation package，it’s also worrisome. The Chinese government plan to use financial deficit amounted to 4trillion RMB which takes the proportion of 2.4% of the GDP in 2009. But this proportion is under the assumption that the financial revenue will increase by 8% YOY. From January to April，the financial revenue decreased by 12.5% YOY while the financial expenditures increased by 25% YOY. Suppose the financial deficit stay the same level，Economists forecast this proportion will increase to at least 4.6% of the GDP if the financial income decrease by 10% YOY which is higher than the international debt cordon used to analysis the default risk of a country. Therefore，if the tax revenue continues to slip，the financial stimulation package we can expected is limited by its payable ability. Then we come to discuss the last factor：Investment from the private sector whether recovers with the government investment. Mr Lan Xiangping，a well-know economists from HK，insist that the deteriorative business environment contribute to the bubble of housing price and stock market in 2007. Unfortunately，until now there is not any sign showed any improvement. What’s more，the huge credit fund，to a certain degree，squeeze out part of the private investment. In a word，it’s hard to say when will the investment from private sector recover or to what degree of this investment recover. If we put an answer to the question raised at the beginning，we can conclude like this：if investors from the private economic sector remain pessimistic about the future while at the same time the stimulation package still prefer to the SOEs；if the economic recovery road for those developed countries are still long，then china cannot go too far alone！