China has scored outstanding success in its economic work during the past year, and the national economy has taken a turn for the better. GDP, investment, foreign trade and consumption, all grew markedly. Accordingly, China's economy is on the rebound, says He Liping, a professor with the China Financial College.
According to authoritative estimates, He says in his recently published article, China's economy is set to grow by about 8 percent this year. The growth of the GDP in the first three quarters increased by 8.2 percent, 1 percentage point higher than it did last year, which indicates a reverse in the general pattern of the GDP declines that were registered in recent years. Accordingly, China's economy is on the rebound.
China's economic growth this year is being spurred by investments, consumption, and foreign trade, the three main factors that influence the macro-economy of any country.
By the end of October, the growth of investments in China reached 12 percent, surpassing that in 1999 and 1997. The total retail rates have risen 10 percent in comparison with 1999 and 1998. Foreign trade figures rose more than 20 percent exceeding those of 1999 and 1998, and were even higher than those of 1997 and 1996, prior to the Asia financial crisis. This growth was beyond what was predicted at the beginning of the year.
These facts surely favor economic growth in the last quarter of this year and at the beginning of next year, He goes on.
However, it is just a sound appraisal that China's economy will tend toward fast growth according to the figures related to investments, retail sales and foreign trade. There are more basic factors that are also related to consumption, investment and foreign trade that will exert further influence on economic growth.
Investment conditions have greatly improved since the 1980s. Now we can boast technical and financial capabilities. For instance, the country's large savings fund has very much encouraged investors.
Material conditions have improved as well. The government has attached great importance to investments in the public infrastructure, such as roads, traffic and environmental improvements. Development in these areas favors future investments. And good conditions for investment will ensure the possibility of fast economic growth.
During the past 20 years, the real income of the Chinese people has been markedly raised. Consumer credit services, an encouraging area of economic development, have risen in China in recent years. Along with the expansion of this credit service, the previous restriction in consumption because of lower incomes is expected to be removed in the coming years.
On the other hand, He points out, there is some disparity between social groups; their consumption is not even. The consumption of families with lower incomes is very much restricted. The government has recognized this problem and has taken many measures to solve it. For example, the basic living guarantee system has been established for city residents, and pensions and unemployment insurance systems have been set up in enterprises. In the countryside farmers are being aided in shaking off poverty. All the above measures ensure consumption confidence among the lower-income groups.
During the Asian crisis about two years ago, many people held onto their cash instead of spending it because they thought deflation would force the prices down. This resulted in the economy being more tightened.
Now that prices have stabilized and the macro-economy is returning to normal, this should stimulate people to invest or to spend. Therefore, domestic investment and consumer demands will grow steadily, assuming that the external conditions do not change greatly.
Besides internal investment, foreign investment is also an important factor in promoting our economic growth. The confidence of foreign investors in investing in China and developing business here will be strengthened by China's entry into WTO.
With the continued carrying out of the policy of opening-up of China to the world, more and more foreign investment will likely stream into China, and high-technique, advanced management and marketing methods will be introduced along with the foreign investment. This should help to foster new investors in China, which will benefit China's economy, he says.
There still exist some problems that are likely to hamper the growth of the economy and these need to be solved, according to He.
First, the institutional reform should be accelerated. In recent years, legislative reforms have been implemented that give better protection to intellectual property rights, but trade restrictions and investment restrictions still hinder economic development to some extent.
Second, the price rise in processed oil, which was caused by a price rise in crude oil on the international market, will inevitably affect the economy.
Third, if reforms in the insurance system, housing, health care, old-age pensions, unemployment in cities, township construction and the rural labor transfer cannot be settled satisfactorily, the economy will be affected.
Fourth, foreign trade is heavily influenced by the world economy.
Fifth, the timetable for China's entry into the WTO has not yet been fixed, and so some foreign investors are taking a wait and see policy instead of investing, thus holding up the input of foreign investment in China. After the entry of China into the WTO, the domestic economy will likely experience various kinds of competition from the foreign economy. It is crucial that China is able to handle this competition well so as to protect the domestic economy while maintaining the economic boom.
(CIIC 12/18/2000)
