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World Bank President Robert Zoellick, during his current visit to Beijing, has advised almost everybody he has met, including Premier Wen Jiabao, not to exit the current loose policies, though it seems that this round of China's economic recovery driven by investment may be overheating. Investment growth in the next two years will be substantially higher than that in previous years, and the proportion of gross fixed asset formation in GDP will also increase significantly. Such a substantial increase in investment will drive import demand, and China's trade surplus may decrease or even become a deficit.
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According to World Bank's PPP data, since 2005 the proportion of China's investment in the world has exceeded 20%. The real growth rate of gross fixed assets formation is expected to reach about 23% this year and next, resulting in a 4.5% rise in global investment. If the investment of other economies shows zero growth, the global investment can still reach the normal level. At present, China's imports account for about 8% of the world's, with annualized month on month growth rate of about 50% and year on year growth reaching 50% next year. Chinese imports will directly lead to 4% growth in global trade. Even if there is no significant inflation, China's investment and imports will surge this year and next, accelerating the global economic recovery.
At present, the US and European economies are sluggish. Against the backdrop of weak global demand, the increase of China's imports, and its decreasing trade surplus, will play a strong stimulating role for neighboring economies and the world. China's increased imports have prompted rapid growth of exports from neighbors such as Japan, South Korea and Taiwan, and aided in the recovery of these economies.
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It is estimated that China's trade deficit next year may reach more than $100 billion and produce about $400 billion/year demand-pull effect on the outside world.
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After SARS in 2003, China's trade surplus declined and became a deficit, while those of Japan, South Korea, and Taiwan increased. China became an active promoter of demand. At that time, when the global economy was still weak, China's pull contributed to the rapid economic recovery of its neighboring economies and then Asian and other stock markets, as well as the increase in global commodities prices, which continued until April 2004 when China implemented macro-control.
It is estimated that global stock markets and commodity prices will continue to rise before China's next round of macro-control policies to curb the rapid growth of aggregate demand. At present, the proportion of China's imports of the world's GDP is much higher than that in 2003, when China's demand-pull effect played only a little at the margin.
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