Qi Jingmei
The overall picture of the Chinese economy in the first six
months is quite encouraging: It is heading forward speedily, its
structure has been further optimized and public welfare has been
boosted.
GDP growth has seen continuous acceleration in the first six
months and the consumer price index (CPI) has remained high. From
March to June, each monthly rise of the CPI broke the 3 percent
ceiling set by the central bank for the year.
In the first half, the GDP figure was 10.677 trillion yuan
($1.41 trillion), up 11.5 percent on the same period last year and
0.5 percentage points higher than the growth speed achieved in that
period. The GDP grew by 11.9 percent in the second quarter, the
quickest since 1994.
The economy is blistering, but the high rate does not
necessarily indicate overheating, as the boom is supported by
substantial improvement in the economy's potential for further
expansion.
In recent years, there has been a solid advance in the basic
industries, like coal mining, electricity generation, petroleum
refining and transport. Consequently, the supply of production
factors is relatively adequate for an economic speedup.
The country also has plenty of funds to forward the economy due
to the accumulation of private wealth and the inflow of foreign
investment.
In addition, demand, both domestic and foreign, is robust and is
a major engine for growth.
Domestic demand used to be weak. Between 1997 and 2001, the
value of sales of consumer goods grew by 8.7 percent a year, far
less than the annual rises of GDP and investment during the same
period.
Vigor was injected into domestic consumption after the
government initiated policies to motivate spending, reallocate
income in urban areas and lift farmers' incomes in 2002.
In 2005, the value of consumer goods rose 12.9 percent; in 2006,
by 13.7 percent; and in the first half of 2007, by 15.4 percent,
the fastest since 1997.
After manufacturing bases from around the world moved here,
China saw a huge rise in its processing trade. Products labeled
"Made in China" now take a big share of the international
market.
The trade dependency ratio - the percentage of exports and
imports against GDP - was 71.7 percent in the first six months.
The strong upward momentum in CPI, 3.2 percent in the first half
of the year, has triggered concerns over inflation among the
public, but runaway inflation is unlikely in the short term.
CPI growth has been driven by increases in the prices of grain,
poultry produces, meat and other foods.
Figures show food prices jumped 11.3 percent last month while
non-food commodities climbed just 1 percent. The food price
contributed 2.5 percentage points to the index's 3.2 percentage
point rise between January and June. Other items included in the
CPI calculation contributed the remaining 0.7 percentage
points.
With the summer grains to be harvested soon and a bountiful
autumn harvest in sight, the price of grain and agricultural
produce should move to a more reasonable level later this year. The
CPI will hopefully drop to its normal growth pace when the food
price is no longer flying high.
The price soar did not affect producer goods though. The
ex-factory price of industrial products saw a 2.8 percent rise in
the first six months, almost identical to the rise over the same
period last year. The cost of raw materials and fuel rose by 3.8
percent, 2.3 percentage points less than last year.
Of course, the price increase has gone beyond people's
expectations, but the economy has also grown 11.5 percent, way
above the 8 percent official forecast.
A buoyant economy usually is better at containing the influences
of high price rises. It would only be worrisome if the economy grew
quickly but prices remained dormant.
Hopefully, the economy will be up by 11 percent this year. A
price rise between 3 and 5 percent is quite acceptable under such
circumstances.
As mentioned above, the economic growth is propped up by strong
demand in investment and exports. But different from in previous
years, in 2007, China owes its growth more to mounting
consumption.
Consumer confidence is enhanced by the continuous economic boom,
with spending on housing and medical care on the increase and the
rural market is especially active since the turn of the year.
The enhanced role of consumption in the economy indicates it is
growing in a more sustainable manner, which has always been the
policy goal.
Another heartening signal from the economic indicators is that
people are enjoying a larger slice of the economic development
cake. The incomes of both urban and rural citizens has risen
rapidly in recent years.
The average disposable income of urban residents was 7,052 yuan
in the first half, up 14.2 percent year on year and 4 percentage
points more than the growth achieved in the same period last year.
Rural citizens had an average cash income of 2,111 yuan, up 13.3
percent year on year and 1.4 percentage points more than last
year.
The increases are a direct result of government's efforts to
improve living standards for workers and pensioners by reforming
the income distribution scheme and giving higher priority to public
welfare.
The author is an economist with the State Information
Center
(China Daily July 27, 2007)
