No gold medal for Chinese economy
Updated
The Olympic host China is currently leading the gold medal count in the Beijing Games. But it appears any gold win for the economy is far from certain. Despite the spending of a record 43-billion dollars, most economists forecast at best a neutral effect on economic output.
Presenter: Karon Snowdon
Speakers: Stephen Green, Asia Economist with Standard Chartered in Shanghai.
SNOWDON: The official bill for the Beijing Olympics is a staggering 43 billion dollars...more than five previous Games added together.
For just 15 days of main events, that breaks down to almost 3 billion dollars a day or 140 million dollars per event, says economist Stephen Green who's been doing the sums.
GREEN: It's a huge bill and 43 billion dollars officially, which is about one-and-a-half times bigger than the previous five Games bills added all together.
SNOWDON: Of course that includes a lot of infrastructure -- a new metro system, the airport, dozens of state of the art stadiums and new residential developments.
Much of that will continue to be used and can be expected to contribute to economic activity in future, but the question remains is it money well spent?
GREEN: Well I'm an economist so I care about the economy and as far as the spending goes it's really a drop in the ocean in terms of China's total investment each year. From an economics perspective we'd argue that there's neither a positive nor a negative benefit to this spending. It is a small drop in the ocean when it comes to investment, so just because the Olympic Games finish in a couple of weeks time doesn't mean that investment is going to crash in China. There's no consumption boom associated with the Olympics either so consumption isn't going to collapse either. It really has very limited economic significance.
SNOWDON: Most reports from economists agree with few exceptions.
Yet a Goldman Sachs report published in Hong Kong forecasts a slowdown in the months of August and September during the Olympics and Paralympics. The report notes the drag on economic activity is likely to be short term as a result of restrictions on construction, factories, cars and mining to cut pollution.
If anything the costs of holding the Games in Beijing are certain to get more attention when the euphoria is over.....the costs to small businesses forced to close, historical architecture pulled down, bulldozed homes and bad PR from overzealous security. On the straightforward economic front China has other problems to worry about. Its troubled stock market slumped a further five per cent on Monday on top of Friday's similar falls in signs of panic selling when government support failed to materialise. And as elsewhere, inflation at a time of slowing growth is set to occupy the authorities when they return to more mundane work.
GREEN: The big economic story in China is how slow is the economy going to slow down to. Obviously we've had a blistering few years of growth over the last five years, but as the global economy slows then China is necessarily going to be impacted. The key question is really from 12 per cent where does China grow to, we think around 9 to 10 per cent this year and then around eight-and-a-half per cent next year. But of course if we have a prolonged global slowdown that's going to have a much more significant impact upon China than if we just had a slow year or two.
SNOWDON: And if it is eight-and-a-half or less for any length of time, what are going to be the real impacts in the economy of growth at that level for China?
GREEN: Well obviously China has to find a lot of jobs for the people coming out of its schools. That really means that as China's economy does lose some momentum from the export side it's really important that the service sector is opened up and here we're talking about financial services, talking about logistics, telecom, entertainment. These things can be big job creators, but at the moment a lot of these sectors are fairly restricted.
