Saturday, December 20, 2008

Yuan Watch : More meatballs needed

By Li Yanping | 2008-12-20

China's industrial output growth will drop further and the government must take measures to sustain production to protect jobs and social stability, Li Yizhong, the minister of industry and information technology, said.

"Unprecedented" declines in the prices of some products such as chemicals and steel, increasing overcapacity in the auto industry, and banks' reluctance to lend may cause a deeper slowdown in output, Li said in Beijing yesterday. His comments were posted on the ministry's Website, Bloomberg News said.

The Royal Bank of Scotland yesterday cut its forecast for expansion in the world's fourth-largest economy in 2009 by almost half to 5 percent, citing a slowdown in investment, exports and consumption growth. China's 4-trillion-yuan (US$585 billion) stimulus package may not have an impact on growth until the second half of next year. "This will feel like a recession to the average citizen," RBS's Hong Kong-based economist Ben Simpfendorfer said yesterday. "The three main drivers of GDP growth in the past five years will not recover rapidly."

Industrial output growth may not recover until the second quarter or third quarter of 2009 when companies' inventories run down to "normal levels," central bank vice governor Yi Gang said at a conference in Beijing yesterday, according to a transcript of Yi's speech.

Production accounts for 43 percent of the nation's GDP and output of steel, vehicles and electricity is falling, he said.

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