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China's economic growth understated: Stevens -

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China's economic growth understated: Stevens

The World Today - Wednesday, 10 December , 2008 12:22:00

ELEANOR HALL: Economists have backed the Reserve Bank governor, Glenn Stevens, in his warning that
China's official growth figures are overly optimistic.

The most recent official figures from China show its economy is growing at around 8 per cent.

But a leading economist says the real growth figure is likely to be closer to 5 per cent.

And that's a worrying number for Australian exporters.

As Brigid Glanville reports.

BRIGID GLANVILLE: Overall energy and mining exports to China in the 3 months to September increased
by 22 per cent, a figure that's welcomed by economists.

What's not welcomed is the news that also in those 3 months export earnings from some minerals such
as nickel fell by more than 60 per cent. A sign that China's economy is slowing.

Economist, Shane Oliver, from AMP Capital.

SHANE OLIVER: Well, it's quite conceivable that when the data's finally in the growth rate in China
in the December quarter could be around five or six per cent, on an annual basis, but in the
quarter itself it looks quite likely that the economy is virtually stalled.

And that's based on a whole range of indicators including a survey of manufacturers that was
released last week and showed the lowest level ever recorded in that survey, and also a lot of
anecdotal evidence which suggests that factories have been closing and production has been slashed,
particularly along the export (inaudible) eastern seaboard in China.

So all of the evidence would suggests that the Chinese economy right now is growing well below the
eight per cent level.

BRIGID GLANVILLE: While demand has been slowing, up until now exports from Australia to China have
still been increasing. But economist are now warning those export volumes will start to fall early
next year.

That means Australia may no longer be able to rely on China to keep it out of a recession.

Shane Oliver again:

SHANE OLIVER: Now with the Chinese economy also succumbing to the slump in global demand and the
global economy, that's going to mean less demand for our exports going forward.

We've already seen a big slump in national income, that I think will become more evident in the
months ahead. But we haven't yet seen clear evidence of a slump in export volumes.

But over the next few months, going into next year I think we will see quite clear evidence in the
official statistics that Australian export volumes are starting to slow.

BRIGID GLANVILLE: But not all economists agree.

Tim Harcourt the chief economist with Austrade is much more upbeat about China's growth. He
predicts growth will be between seven and nine per cent next year.

TIM HARCOURT: We've had a very, very good run, particularly in terms of prices, volume growth has
actually held up reasonably well in the last couple of years. But I do expect demand from China to
fall, and I also expect that when all the contracts get renegotiated next year there will be a fall
in prices.

But there's still a fair bit in the pipeline to maintain volumes at a reasonable rate, but not,
obviously not as fast as they've been the last couple of years.

BRIGID GLANVILLE: Sixty-five per cent of all Australia's exports go to Asia. China takes 13 per
cent.

Most economists now agree that in the short term, demand from China will be flat, but in the medium
to longer term, they're hopeful of a turn around.

Shane Oliver from AMP Capital:

SHANE OLIVER: In the very short term I think there's probably more bad news to come out of China,
it's great to see that the recent stimulus package in China, the move to lower interest rates, move
to stimulate the Chinese property sector. But it will take a while before those sorts of policies
take effect.

So, my feeling is that over the next few months, going to the early part of 2009, growth in China
will remain very weak, possibly even flat on a quarterly basis.

But as we go through 2009, we will see a quick snap back in growth.

BRIGID GLANVILLE: Australia's latest export forecasts will be released next week.

ELEANOR HALL: Brigid Glanville reporting.