China to drive global recovery
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China will lead emerging markets to propel global economic recovery this year as the government intends to shift stimulus spending to social welfare which will release funds for consumer spending, HSBC said in an annual report yesterday.
Emerging markets with an average gross domestic product growth of 6.2 percent will drive economic development, compared with a 1.9 percent rise in GDP for developed nations, the bank said, adding that China will play a leading role in this respect.
"China's growth has rebounded strongly amid massive fiscal and monetary stimuli," said Qu Hongbin, HSBC's chief economist in China.
"This infrastructure-led recovery will likely be sustained in 2010, not least because the long-term railway and road projects won't fade overnight. We expect GDP growth to accelerate to 9.5 percent this year, from 8.7 percent in 2009," he said.
The report estimated that continued investment in ongoing infrastructure projects and strong housing sales imply that growth in fixed-asset investment should stay above 20 percent this year.
China has also adjusted its export-driven economy to depend more on domestic demand.
For China to maintain its economic growth, it is widely recognized that it needs to stimulate domestic consumption. The government has responded by shifting spending to social welfare, which is expected to release household savings that could instead be used to boost consumer spending.
China intends to spend 850 billion yuan (US$124 billion) on health care reform over the next three years. It will also spend more on education and public housing in the coming years.
"We believe the jump in government spending on the social safety net, combined with surging consumer credit, will encourage consumers to loosen their purse strings and lower their savings rate by five percentage points in the next three years," Qu said.
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