External risks impede China recovery, more easing seen

Tue Dec 18, 2012 5:11am EST
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By Kevin Yao and Aileen Wang

BEIJING (Reuters) - China's burgeoning economic recovery may need central bank easing to spur it along next year, as foreign investors scale back spending commitments in the face of a gloomy external outlook that clouds prospects for the world's biggest exporter.

The People's Bank of China's (PBOC) fourth quarter survey of economic expectations, published on Tuesday, saw a jump in the number of bankers anticipating monetary easing in Q1 2013, even as recent hard data shows a mild rebound taking hold in Q4.

Weakness in the external environment - to which the world's second biggest economy is levered - remains a drag, according to the Ministry of Commerce, which on Tuesday revealed data showing foreign direct investment extended its longest run of year-on-year falls in three years.

"Next year, there are still many uncertainties for external demand and the prospect of a slowly growing global economy will last for a while," ministry spokesman, Shen Danyang, said.

"In addition, there is also increasing trade protectionism emerging. So we cannot be optimistic about the external trade environment next year," Shen told a scheduled news conference.

China is on course to end 2012 with the slowest full year of growth since 1999 and while the 7.7 percent rate forecast in a benchmark Reuters poll is way above the world's other major economies, it is far below the roughly 10 percent annual growth seen for most of the last 30 years.

Private sector economists, such as ING's head of Asian economic research Tim Condon, believe Beijing will act to drive the economy forward in 2013 as new leaders at the top of the ruling Communist Party get a firmer grip on the policy reins.

The government so far has relied on fine-tuning policy settings in its efforts to combat the worst downturn China has faced since the 2008-09 global financial crisis, studiously avoiding any hint of repeating the 4 trillion yuan ($640 billion) stimulus package it launched back then.   Continued...

Labourers work at a steel market in Huaibei, Anhui province, December 18, 2012. REUTERS/Stringer