Qi Jingmei
As the national economy continued its brisk momentum through the
early part of the year, members of the public, administrative
circles and academia began to wonder whether the growth could be
sustained.
A detailed analysis of the economic situation suggests the
sustainability of the growth depends heavily on how the authorities
address several key problems with their macro control policies.
The current fundamentals are strong enough to back further
growth, but the country also faces potential limits from resource
and environmental pressure.
In 2006, the major economic indicators met expectations and even
went beyond the predicted growth rate. But the country missed its
target of reducing energy consumption for every unit of gross
domestic product (GDP) by 4 percent.
In the first six months of this year, the six most
energy-intensive industries - crude oil refining, nonferrous metal
smelting, chemical engineering, electricity generation, coke
production and nonmetal ore refining - saw their total industrial
value added increase by 20.1 percent, which was 3.6 percentage
points more than during the same time last year. The rate of energy
consumption also grew quickly. The amount of electricity used by
heavy industry jumped by 18.8 percent in the first half, 4.6
percentage points more than during the same period in 2006.
If this momentum is not checked in time, it will be more
difficult to reduce energy consumption this year. It might also
complicate efforts to cut energy consumption per unit of GDP by 20
percent and reduce pollutant discharges by 10 percent during the
period of 2006 to 2010, which are goals outlined in the 11th
Five-Year Plan.
So instead of being overwhelmed by the amazing economic growth,
the authorities should pay more attention to reducing energy
consumption and cutting pollutants.
On the one hand, the authorities should upgrade the industrial
structure by promoting new technology and new materials and
importing low energy-consuming technologies and equipment. Industry
should consider reducing pollution its first priority.
On the other hand, the growth of manufacturing sectors that
could be considered energy guzzlers should be slowed, while the
tertiary sector should be boosted.
Compared with agriculture and industry, the tertiary sector
consumes fewer resources and emits less pollution. Tertiary
businesses put less of a burden on the environment, so expanding
the sector will make our economic growth more sustainable.
In 2006, Beijing cut its energy consumption for per unit of GDP
by 5.25 percent, the only provincial body to hit the 4 percent
target. This success should be attributed to the relatively small
proportion of the local economy occupied by heavy industry - the
tertiary sector contributes more than 70 percent to Beijing's
economic output.
The economies of the most energy-hungry provinces - Qinghai
Province and the Ningxia Hui Autonomous Region, for example - are
dominated by heavy industry.
Another important goal of the country's macro control efforts is
to rein in real estate investment to maintain prices at a
reasonable level. But this target is far from being achieved.
In the first six months of this year, investors poured 988.7
billion yuan ($130.1 billion) into real estate development,
representing 28.5 percent year-on-year growth. The average price of
property in 70 cities across the country climbed by 7.1 percent in
June alone, 0.7 percentage points more than the preceding month and
a record rise for the past 23 months.
Policies aimed at checking the frenzy in the real estate market
are mostly focused on containing demand. Developers face stricter
regulations when borrowing, down-payments for houses bought with
mortgages have been increased and regulations on the purchase of
multiple apartments have been put in place. However, instead of
curbing prices, these policies only sped up the growth.
So policymakers should try to tackle the problem from another
front: offer more supply to the real estate market.
Real estate prices in Qinhuangdao, a medium-sized coastal city
in North China's Hebei Province, soared last year. The average
price leapt by 11.8 percent in December 2006, making headlines
across the country. But this momentum quickly ceased after the
local government approved 15 estate projects within a short time.
Prices soon resumed a more normal growth rate.
Another factor pushing up real estate prices is that many
developers hoard land or houses in the hopes of selling them in the
future at higher prices. Hoarding exacerbates the shortage of
supply and supports price rises.
When the real estate market has abundant supply, prices rise
more slowly. An increased supply should include multiple types of
residence: market rate homes, government-subsided low-priced homes
and low-rent homes. Thus, the demands of different social groups
will be satisfied in different ways, and the real estate market
will see a balance between demand and supply.
Since the start of the new year, the central government has
launched several measures to help the economy develop more
smoothly, but few of them delivered as much as expected.
A key reason is that the market is playing a more important role
in the economy. The market has its own rules to balance demand and
supply, to guide the flow of resources and to ensure competition
among players.
The development of the past few decades has left China's market
relatively mature, and its performance in the areas mentioned above
is much stronger than in the past.
Macro control policies should only be aimed at settling issues
that the market cannot settle, or at maintaining the market
order.
Policymakers should try to improve the economy's structure with
monetary and fiscal policy, rather than paying overt attention to
the details of the market.
The author is an economist with the State Information
Center
(China Daily September 24, 2007)
