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China can sustain 7% GDP growth for 12 years if the tier 2 and tier 3 cities catch up the tier 1

Thursday, December 13, 2012 5:53

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From NextBigFuture.com

Business Week – This week, both China bears and China bulls can point to numbers that seem to prove their cases. For those downbeat about China’s chances, the grim export figures for November are the latest piece of evidence. Export growth fell to just 2.9 percent year-on-year last month, down from 11.6 percent in October. The November results were much lower than what many economists had expected: Barclays, for instance, had thought the number would come in at 11 percent; Daiwa was expecting 9.2 percent.

Even with the poor export picture, though, the Daiwa economists expect China’s economy to rebound in the fourth quarter of 2012. They point to a 10.1 percent increase in industrial production last month, an improvement over 9.6 percent growth in October. “This suggests to us that real [gross domestic product] growth should have rebounded strongly in 4Q12,” Sun and Sun write.

Other good signs include lower inflation for the non-food consumer price index, which fell to 1.6 percent in November from 1.7 percent the previous month. Daiwa expects Chinese GDP, which grew at 7.4 percent in the third quarter and 7.6 percent in the second, to bounce back above the 8 percent threshold this quarter, with growth coming in at 8.2 percent.

The growth isn’t coming from the export sector. And it’s not coming from domestic consumption either, according to Bloomberg economist Michael McDonough. Rather, China is rebounding largely thanks to state spending on infrastructure projects.

Guangdong province in southern China plans on spending more than 1 trillion yuan on rail and other transportation projects between 2011 and 2015, the government announced on Nov. 16. That’s more than double what the province spent in the five years ending in 2010.