Vigorous growth has resumed in China, thanks to a very large monetary and fiscal stimulus. Momentum picked up in the second quarter and annual GDP growth is projected to exceed 8% in 2009 and 10% in 2010, before easing slightly in 2011 as the impact of the fiscal stimulus ends. The strong increase in domestic demand stemming from the stimulus has drawn in imports, while exports have been weak and may not recover to pre-crisis rates. As a result, the current account surplus is set to fall sharply to 5.5% of GDP by 2010 before rising somewhat in 2011, as domestic demand growth eases. Inflationary pressures are likely to remain subdued.
The fiscal stimulus has not endangered public finance sustainability. Indeed, starting from a sizable surplus and negative net government debt on the eve of the crisis, the government can afford to keep spending at higher levels. The composition of public spending, however, ought to be changed to favour outlays on social services, notably education, health and pensions. By contrast, credit growth will need to be reined into avoid a renewed build-up in poor-quality loans.
©OECD Observer 2010