China's growing economy dangerous to Russia

China takes the first place in the world in terms of economic growth. However, analysts say this trend is caused by injections of cheap financing to stimulate the economy of this country. Collapse of the "China bubble" brings a threat of the collapse of commodity prices. This is an extremely adverse impact, particularly for Russia.

"Although 2010 is not over yet, it is obvious that in the 11th Five-Year Plan China's economy has made a new leap," reports Chinese newspaper People's Daily. "In 2006-2009, over four years, the average annual GDP growth was 11.4%, which is by 1.6% points higher than in the tenth Five-Year Plan - 9.8%.

The publication stresses that the indicators of the pace of development of the Chinese economy over the period are 8.2 percentage points greater than the same indicator of the world economy.

However, it notes that these successes were achieved despite the negative impact of the global financial crisis on the economy, as well as the fact that China, during the years of the last five years plan, had to face "serious challenges" such as the devastating earthquake in Sichuan Province in 2008, and numerous other natural disasters.

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However, as explained in an interview to Bigness.ru by Sergei Gorev, a trader of the Department of Trade and Sales of UFS Investment Company, the growth trend reflects a recent infusion of cheap Chinese government funding to stimulate the economy.

In 2009 alone, China gave away loans for the amount of $1.4 billion, most of which went to the property market, inflating the bubble to incredible proportions. There is already a marked decline in the demand for copper, nickel and other commodities from the Chinese side. The collapse of the bubble in the Chinese economy may bring about a collapse in commodity prices, which will affect the quotations of currencies of export-oriented commodity-dependent countries such as Australia, Canada, and, of course, Russia, in extremely unfavorable way - depreciation, says the expert.

Anna Bodrova, an analyst with LiteForex, is also not surprised by the news. According to her, the fact that China has been showing significant growth rates in this five-year plan, of course, sooner or later would have brought it to the position of the world's leading economy. Take at least the first half of 2010, when China's GDP grew by 11.1 %, while the rest of the world's economies growth slowed.

However, the expert does not agree with Sergei Gorev that this fact has a negative connotation. "For Russia, China's leap to the position of global economic leadership is a neutral fact, although, given the activity of both Russian authorities and China in the talks on cooperation, for Russia to have such a strong partner is a definite plus. Gazprom and Lukoil are seriously interested in selling their raw materials to the Chinese side in the face of growing demand there, there is a discussion of building a new pipeline. Thus, indirectly, the growing economy of China is rather a plus than a minus for the Russian Federation," says Anna Bodrova.

The Asian Development Bank earlier predicted that the pace of China's economic growth in 2010 will amount to 9.6%. In 2009, despite the negative impact of the global financial crisis on China's economy, the government still managed to maintain its growth at a fairly high level. This indicator, according to the results of the last year, amounted to 9.1%, while GDP was 34.0507 trillion Yuan (U.S. $5.296 trillion). The most difficult time for China was November of 2008, while the lowest point of recession came in the first quarter of 2009, when China's GDP grew at 6.1%.

Previously, experts said that China could very well shift the U.S. from its place of the largest economic power, because its population, companies and government do not have such large debts as the nations of the West.

Marina Volkova
Bigness

Read the original in Russian