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CCTV News: China’s 2Q10 Economic Figures

July 16, 2010

Yesterday, I appeared on CCTV News BizAsia and the noontime NewsHour to discuss the 2nd Quarter economic figures that were released just minutes before.  China’s GDP for 2Q came in at 10.3%, compared to 11.9% in 1Q; you can watch two short clips of my comments on what this means here and here.  My basic message was that it’s the quality, not quantity, of growth that matters right now, and that I’m concerned how much China’s high GDP growth rates are dependent on stimulus-generated investment.  The key challenge the Chinese economy faces over the next half year is to wean itself away from easy credit and cheap money while still maintaining the levels of growth we’d all like to see.  My good friend Andrew Peaple of the Wall Street Journal made much the same point in his column here.

The second set of questions focused on inflation.  China reported CPI (inflation for consumer goods) at 2.9% in June, compared to 3.1% in May.  You can check out my comments on this subject here and here.  My main point was that, while CPI figures may be easing, they are still above the regulated deposit rate, which means people who have their money in China’s banks are losing buying power, and that we can’t look solely at consumer inflation, but also have to keep an eye on rising prices for real estate and other assets, which CPI doesn’t measure.  Along these lines, you can hear my follow-on observations on the status of China’s real estate market here.

On the subject of inflation in China, I’d also highly recommend checking out some insightful comments by Michael Pettis, my counterpart at Peking University, on a later edition of BizAsia that same day.  I agree with his analysis of why China’s aggressive monetary expansion is not necessarily translating into consumer inflation.  In fact, if money creation is being channeled into investment, and that investment (at least to some degree) results in expanded production capacity, it could actually dampen consumer inflation.  Having said that, one would expect to see other forms of inflation — PPI for raw materials and inputs, asset inflation in real estate or stocks — wherever the money does end up going.  In my view, that reinforces the point I was making earlier, which is that we shouldn’t focus exclusively at CPI, or take too much comfort from low CPI numbers.  I don’t want to put words in Michael’s mouth, of course, I’m sure he has his own thoughts on this, but that’s my takeaway.

Last but not least, if anyone’s been following this week’s AgBank IPO — or any IPO for that matter — and found yourself wondering what a “greenshoe” is, you can listen to my quick and dirty explanation in a short clip here.

Oh, actually that wasn’t the last item.  The Australian Broadcasting Corporation (ABC) ran a story on the AgBank IPO that featured a couple of my comments.  You can view it here.

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