The stark contrast between stronger-than-expected investment growth and the worst slump in exports in more than a decade highlights the huge challenge for China to change its growth model. However, difficult as it may be, Chinese policymakers need to work harder to boost consumption as a driving force of the economy.
China's urban fixed-asset investment for the first five months of the year surged 32.9 percent year on year, compared with a 30.5 percent gain through April. The acceleration of investment growth will surely lend credence to the optimistic view that the Chinese economy has bottomed out - the first of the world's major economies.
Nevertheless, the country's export figure depicts a different picture.
To the surprise of most observers, China's exports dropped 26.4 percent in May from a year earlier as the global recession substantially cut demand for goods produced by the world's third-largest economy. Though some people insisted that the deeper-than-expected decline of exports might indicate that the worst is probably over, they have to admit that recovery will be gradual and slow.
For Chinese policymakers, the robust investment growth is evidence that the country's 4 trillion yuan (US$586 billion) stimulus package is working with the aid of record new lending by banks. But overheated investment growth means that inflation may return quickly to stifle a solid recovery. The rapid rise in global commodity prices in recent weeks has already sparked worries about inflation.
Moreover, excessive investment growth can sustain economic expansion in the short term, but does not help change the growth pattern. Admittedly, the present infrastructure-led investment surge differs a lot from previous export-led investment booms. But infrastructure investment cannot sustain economic growth unless it helps facilitate consumption growth.
The fall of exports has long been predicted and even viewed as a necessary price for the country to shift away from its dependence on external demand for growth.
But the seventh round of increases of export tax rebates since last August, effective from June 1, showed that the plunge in overseas sales has proved more painful than originally thought.
Given the uncertainty of recovery of the world economy, it may be necessary, for the moment, to keep boosting investment while cushioning the export sector against unprecedented difficulties.
But growth driven by investment and exports is no longer the desirable development path for China. Chinese policymakers should devote more effort to enrich consumers and encourage consumption if the economy is to find a solid foundation for sustainable growth.
(China Daily June 12, 2009)
