China 2011 Wrap-up
With most of the numbers in and New Year’s celebrations in both the West and China nearly behind us, it’s a good time to put a final wrap on 2011.
On an overall basis, there are a number of conclusions that can be drawn from China’s economic performance in 2011. First, despite a year of tight credit and doomsday predictions from many China watchers, the China economy is alive and well and continues to grow at a healthy rate. Secondly, consumption and private investment are now becoming the major drivers of China’s economy, with exports and government spending already playing less of a role than they have in the past. Third, the role of state-owned enterprises (“SOEs”) in the overall economy is declining. Fourth, private companies are accounting for most of China’s growth in employment. And finally, China is becoming increasingly urban, a trend that will continue to play out for some time to come.
I am grateful to Andy Rothman, China Macro Strategist for CLSA Asia-Pacific Markets, for supplying many of the following statistics that support the above conclusions. The research and analysis provided in Andy’s reports on China’s economy are some of the best that I have come across.
The Economy: China’s economy, as measured by its Gross Domestic Product (“GDP”), grew by 9.2 percent in 2011, down from 10.4 percent in 2010. Consensus estimates for 2012 are in the area of 8.5 percent.
Inflation: For the full year, China’s inflation rate was 5.4 percent. However, inflation has been on the decline since July when it peaked at 6.5 percent. From its high point, inflation fell to 6.2 percent in August, 6.1 percent in September, 5.5 percent in October, 4.2 percent in November, and 4.1 percent in December. The World Bank estimates that China’s inflationary pressure will ease further in 2012, predicting that the Consumer Price Index (“CPI”) will decline to 4.1 percent.
Composition of Growth: In 2011, investment accounted for 5 percentage points of China’s economic growth, while consumption contributed 4.7 percentage points. Net exports were a negative 0.5 percentage point drag on growth. For a fuller discussion of the declining role of net exports in the growth of the Chinese economy, see our earlier post on the subject.
Investment: Fixed asset investment (“FAI”) rose 23.8 percent in 2011. SOEs accounted for only 36 percent of total FAI last year, down from 45 percent in 2009 and 58 percent as recently as 2004.
Source of Employment: The share of total urban employment accounted for by SOEs is now about 19 percent, down from 35 percent in 2000 and 61 percent in 1990. Non-state firms have accounted for all new job creation in China over the past five years.
Property: The government succeeded in cooling the property market in 2011. New home sales, on a square meter basis, grew by 3.9 percent last year,down from 8 percent in 2010 and 45 percent in 2009. According to the National Bureau of Statistics, prices of new homes sold in December fell in nine of the 70 cities where it tracks home buying statistics. In most of the cities where prices fell, however, the decline was less than 1 percent from the previous year.
Urbanization: Migration to the cities continues and will continue to be a significant trend going forward. The government reported earlier this month that, for the first time in its history, the number of people living in China’s cities exceeds those living in the country’s rural areas. As of the end of 2011, 51.3 percent of Chinese live in urban areas, up from 36 percent in 2000, 26 percent in 1990 and 11 percent in 1949.