Games boost sentiment, but no boon for Chinese economy
Monday, 13 August 2007
BEIJING, Aug 12 (AFP): While the 2008 Olympics will not have any major direct effect on economic growth in China, it will have an immense indirect impact, in terms of boosting overall sentiment, economists said.
The right to host the world's largest sports event has given many Chinese the feeling that everything is moving in the right direction, and they are spending accordingly in the stock and real estate markets.
"The psychological effect is very powerful. The Olympics are proof that the country has made it and is joining the ranks of the developed countries," said Andy Xie, an independent economist based in Shanghai.
"People are becoming very optimistic, so they are buying property, they are buying stocks. It's really supercharging the economy. Part of the overheating story comes from that," he said.
Public moods are notoriously tough to measure, but economists see clear reflections of the bullish sentiments in for instance the equity markets.
As retail investors have poured their money into stocks, the benchmark Shanghai Composite Index has jumped more than 75 per cent this year, after surging about 130 per cent in 2006.
This creates a wealth effect, as stock investors spend their new-found fortunes on everything from autos to tourism, contributing to overall economic growth, which reached 11.9 per cent in the second quarter.
But mixed with the euphoria is an underlying anxiety about what might come after August 24, 2008, when Beijing passes the Olympic torch to next host London.
Some stock investors and property buyers worry that the government, eager to prevent bubbles in equities and real estate, will act more decisively once the Games are over.
"There seems to be some uncertainty about what will happen after the event, whether there will be significant crackdown on investment," said Tai Hui, a Hong Kong-based economist with Standard Chartered.
"I'd expect the usual gradual tightening of monetary policy in China and for the yuan we also expect gradual appreciation," he added.
Outside the intangible realm of sentiments, in terms of actual direct economic benefit, the Games will be felt mostly in the Beijing area.
"We estimate that the Olympics will add two percentage points to Beijing's economic growth," said Li Zhiwu, a Shenzhen-based economist with Essence Securities.
"It will be a major driver of economic growth there," he added.
But Beijing has just a little more than one per cent of China's 1.3 billion people, and elsewhere in the country the world's largest sport event will hardly be noticed.
The right to host the world's largest sports event has given many Chinese the feeling that everything is moving in the right direction, and they are spending accordingly in the stock and real estate markets.
"The psychological effect is very powerful. The Olympics are proof that the country has made it and is joining the ranks of the developed countries," said Andy Xie, an independent economist based in Shanghai.
"People are becoming very optimistic, so they are buying property, they are buying stocks. It's really supercharging the economy. Part of the overheating story comes from that," he said.
Public moods are notoriously tough to measure, but economists see clear reflections of the bullish sentiments in for instance the equity markets.
As retail investors have poured their money into stocks, the benchmark Shanghai Composite Index has jumped more than 75 per cent this year, after surging about 130 per cent in 2006.
This creates a wealth effect, as stock investors spend their new-found fortunes on everything from autos to tourism, contributing to overall economic growth, which reached 11.9 per cent in the second quarter.
But mixed with the euphoria is an underlying anxiety about what might come after August 24, 2008, when Beijing passes the Olympic torch to next host London.
Some stock investors and property buyers worry that the government, eager to prevent bubbles in equities and real estate, will act more decisively once the Games are over.
"There seems to be some uncertainty about what will happen after the event, whether there will be significant crackdown on investment," said Tai Hui, a Hong Kong-based economist with Standard Chartered.
"I'd expect the usual gradual tightening of monetary policy in China and for the yuan we also expect gradual appreciation," he added.
Outside the intangible realm of sentiments, in terms of actual direct economic benefit, the Games will be felt mostly in the Beijing area.
"We estimate that the Olympics will add two percentage points to Beijing's economic growth," said Li Zhiwu, a Shenzhen-based economist with Essence Securities.
"It will be a major driver of economic growth there," he added.
But Beijing has just a little more than one per cent of China's 1.3 billion people, and elsewhere in the country the world's largest sport event will hardly be noticed.