Spending on core sector up

Fixed¹ asset investment continued to surge in April thanks to the government's stimulus² package, but the nation's exports dropped further, reflecting weaker demand in overseas markets.

The nation's spending on fixed assets such as roads, bridges and new plants grew 30.5 percent in the first four months from a year earlier. That compares with a 28.6 percent surge in the first quarter, the National Bureau of Statistics said yesterday.

Meanwhile, exports dropped 22.6 percent from a year earlier to $91.94 billion in April, the Customs said yesterday. This was steeper than March's 17.1 percent decline. Imports slumped³ 23 percent in April, compared with a 25.1 percent decline in March.

"We expect fixed asset investment to be the single most important contributor to China's GDP growth in 2009," Jing Ulrich, chairwoman of China Equities⁴ at JPMorgan said in Beijing yesterday. Ulrich reckoned that investment could account for 45 percent of China's economy this year, if it maintains a growth rate between 25 percent and 30 percent for the rest of the year.

Analysts⁵ said the recent recovery of the housing market was likely to lend more support to investment growth. Real estate investment, accounting⁶ for more than one third of the nation's fixed asset investment, grew 4.9 percent in the first four months of the year, up from 4.1 percent for the first quarter.

Meanwhile, the pickup⁷ in housing prices may also help fuel investment in the sector⁸. According to the National Development and Reform Commission, average housing prices in the 70 major cities edged up 0.4 percent in April from a month earlier, although it represented a 1.1 percent drop from a year earlier.

Investment represented 42 percent of China's GDP, compared with consumption's 48 percent and net exports' 9 percent. Analysts have long criticized the economy's excessive reliance on investment and exports, which make it particularly vulnerable to economic fluctuation⁹ abroad.

"In the short run, the rise of government-led investment is necessary to stabilize¹⁰ the economy," Ulrich said. "But the money should not be spent on building new manufacturing capacity, given the prevalent capacity in some industries."

Investment related to the government stimulus package is expected to help cushion the impact of the drastic decline in foreign demand.

The nation's foreign trade sector provided more than 80 million job opportunities, the Ministry¹¹ of Commerce said in a statement yesterday. It said the nation's foreign trade sector is still facing serious challenges, despite the government's move to boost the sector.

The World Trade Organization estimated that global trade is likely to drop 9 percent in 2009, the steepest decline since World War II.

China's leading trade fair, the Canton Fair, concluded last Thursday with export orders down 17 percent, which analysts said was a sign of further weakness of the sector.

Questions:

1. How much did exports drop in China compared to a year earlier?

2. According to the chairwoman of China Equities at JPMorgan in Beijing what is the single most important contributor to China’s GDP growth this year?

3. What was the advice the chairwoman mentioned concerning where the stimulus investment funds should not be directed towards?

Answers:

1. 22.6 percent.

2. Fixed asset investment.

3. On building new manufacturing capacity.