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Chinese growth rate surges to 7.9 per cent -

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Chinese growth rate surges to 7.9 per cent

Stephen Long reported this story on Thursday, July 16, 2009 12:20:13

PETER CAVE: The pace of economic growth has quickened in China, raising hopes of a stronger
economic recovery in Australia. China's economic output is 7.5 per cent higher than a year earlier,
according to official government estimates. That's up from 6.1 per cent a year in the first
quarter.

Joining me with more on the story is economics correspondent Stephen Long. Stephen, how significant
do you see this pick up being?

STEPHEN LONG: Well I think it's a lot more significant than the words of the US Federal Reserve
chairman suggesting that things are looking a little bit brighter in the States.

China is really a lynchpin, it's one of the few economies that's been recording strong growth and
yet, the pace of growth had fallen to the weakest point in almost a decade.

Now, if you believe the statistics Peter, and that's an important caveat, it's expanding at 7.9 per
cent and that's almost back on track. You know, anywhere around 8 per cent is sort of relatively
healthy growth in China. If you're below 7.5 it's seen as akin to a recession and when we were
looking at very low growth rates it could've been an economic disaster for the world.

So this is very significant that China's picking up, not the least for Australia, because it bodes
well in terms of mineral exports. Of course, the question is, how sustainable is the recovery?

PETER CAVE: You say if we can believe these figures; do the Chinese have a history of massaging
their figures?

STEPHEN LONG: Look, I've spoken to a former statistician from China who said that they were often
under pressure to put out figures that shed things in the best possible light, within reasonable
parameters. And they also bring out their figures relatively quickly compared to the rest of the
world.

If you look at it, you know, we're getting figures for the second quarter of the year and we're
only in the middle of July, so a huge economy, 1.3 billion people living in China, and they're
coming out with stats right up to the end of June, two weeks later.

PETER CAVE: If we believe 7.5 per cent, how have they achieved it?

STEPHEN LONG: Well you have to pin it very strongly on government intervention - China's four
trillion Yuan stimulus package, which is somewhere around $AU750 billion, $AU800 billion, and the
scrapping of lending, restrictions for banks.

So as a consequence of that you've had record lending in China and surging government investment,
which has really picked up the pace of industry output, retail sales are going up sort of 15 per
cent a year, industry output 8.9 per cent.

But if you look at it, that's down from what it was, you know, still significantly down on a year
ago and even down, you know, down on recent times and so, yes it's made a difference but is it
sustainable?

China's got a very, very high level of bad debts. It's got a history of bad debts and if you're
just going to open the tap and allow banks to lend, well what's the long-term consequence? You've
had massive growth in Chinese stock values, for instance Peter, on the basis of this government
money coming in; what happens when the tap gets turned off?

Are they setting up economic bubbles in property in China? On the stock market? I'd really question
whether in the long run it's sustainable, but of course, as long as it lasts we're going to be
pumping out iron ore and coal and it's going to be going to China so it's good news for us.

PETER CAVE: We've already had that dreadful term "green shoots" in the program so can I ask you,
are there any crickets under the surface nibbling away at the roots?

STEPHEN LONG: Well I think so. I mean one of the things is that China's been stockpiling ore, so we
could actually see a situation where the demand runs out and it goes down.

The other thing is, Chinese exports have just collapsed. They're down sort of roughly 30 per cent
over the year, and so this is all - and the Chinese Government admits this - the base for recovery
is still week, growth momentum is unstable, the recovery pattern is unbalanced, it's all coming
from government money, none from exports, can it keep going?

PETER CAVE: Our economics correspondent Stephen Long, live in the studio.