Oct. 23, 2009 (The Yomiuri Shimbun) -- BEIJING--The 8.9 percent real growth in China's gross domestic product in the July-September period from the same period in the previous year demonstrates how the Chinese economy has been moving toward recovery, escaping the damage caused by the global economic crisis before other countries.
However, this growth has been boosted by the Chinese government's massive spending on economic stimulus measures. The exports that once led the country's growth are still weak, fueling concern over such problems as excess production capacity.
Japan, the United States and European countries, all of which are lagging in their own economic recoveries, expect China to lead the global economy out of recession. Is it possible, however, for that country to play such a role?
Baosteel-NSC/Arcelor Automotive Steel Sheets Co. (BNA), a joint venture established by Japanese steelmaker Nippon Steel Corp., China's Baosteel Group Corp. and others, has been operating at full steam.
A Shanghai-based manufacturer of steel sheet, BNA produces one-fourth of all the steel sheet used in automobiles made in China. With a flood of orders from Chinese automakers, the company is planning to move forward the launch of a new production line that was originally scheduled to start operation next February.
The volume of China's auto sales for this year's January-September period amounted to about 9.66 million units, more than the total for all of 2008. The rise is due to an increase in consumer income as a result of China's economic growth and the government's stimulus measures, including a cut in the purchase tax on small cars. Some automakers have been unable to keep up with demand, prompting them to sell the cars on display in their showrooms.
The recovery of the Chinese economy has been supported by the government's four trillion yuan (53 trillion yen) in economic measures, launched in November 2008. As part of these measures, investment in fixed assets, including such social infrastructure as railways and roads, surged 33.4 percent over the January-September period from the same period a year earlier.
The nation's industrial output in July-September grew 12.4 percent, compared with 5.1 percent growth in the January-March period, indicating the accelerating recovery of the Chinese economy.
Retail sales, which indicate trends in private consumption, have been recovering steadily, showing 17 percent growth in the July-September period from a year earlier.
Revitalize production through public investment and boost private consumption through measures to improve domestic demand--this is the Chinese government's policy regarding economic stimulus. BNA's robust business, supported by brisk auto sales, symbolizes how this system is working.
However, it still is unclear whether China can maintain self-sustained growth that can lead the global economy.
The country's exports, which fueled its double-digit growth rate until 2007, are showing signs of recovery due to a lull in the recessions in the United States and Europe. Overall, however, they are still slumping.
There also has been insufficient progress in changing China's economy from one led by exports to one led by domestic demand. Furthermore, rapidly increasing investments in China have caused excess production capacity due to overlapping investments in specific sectors that have been deemed easy to invest in, according to Naotaka Sonoda, manager of the corporate research department at the head office of Sumitomo Mitsui Banking Corp. in Shanghai.
China's production capacity for iron and steel, for example, is about 660 million tons, compared with a demand of 500 million tons in 2008. The production capacity for cement, including that to be produced in facilities that are still in the planning stages, will amount to 2.7 billion tons, far exceeding actual demand of 1.6 billion tons.
Such excessive production capacity may lead to fierce competition and a subsequent decline in corporate performances, likely causing bad loans of such companies.
