Q: Since 2003, the Chinese economy has experienced
another period of overheating. What are the causes of this? People
from other countries have expressed concern about negative
consequences in the aftermath of macro control policies adopted by
the government. What kind of measures will the Chinese Government
take to avoid negative impacts?
A: Every country practices macro control policies, varying only
in means. China's economy had witnessed three rounds of overheating
during its economic development and had solved the problem through
macro control. Different from the previous rounds, which involved
all the main sectors, the latest round, which started in 2003, is
characterized with over supply in the industrial sector and short
supply in the service sector.
Economic overheating has jeopardized the coordinated development
of the Chinese economy. Sharp increases in China's demand of
natural resources and raw materials have turned China into a big
importer, resulting in soaring prices in both domestic and
international markets. Take the iron and steel industry as an
example. After China completes the construction of all undergoing
iron and steel projects, the total annual production capability
will reach 350 million tons. This means that even if China
purchased all iron ore produced in the world, it still would not
meet the demand of its iron and steel industry.
A fundamental reason for economic overheating is low investment
efficiency. Huge investment without raising efficiency is not a
feasible way to sustain growth for a country like China that has
limited natural resources. Macro control becomes a must.
In the past, China's macro control usually featured
administrative means, leading to some negative consequences. By
comparison, an obvious characteristic of current macro control is
its main reliance on market and legal methods. The concrete
measures are as follows:
First, combining the adjustment of credit policies with that of
industrial policies. The government on one hand requires commercial
banks to strictly control loans to overheated industries such as
steel. On the other hand, it gives capital support to projects that
are conducive to structural adjustment, expansion of consumption
and increasing job opportunities.
Second, the government will not approve acquisition of land for
projects that do not conform to State industrial policies and
industry entry standards. Approval of land acquisition will be
suspended in regions where land embezzlements are prevalent.
Illegally acquired land will be retrieved.
Third, projects either under construction or on the waiting list
will be stopped if they are found to have violated State laws,
environmental protection regulations, city planning, and loan
policies and procedures.
Fourth, the government has raised the required proportion of
up-front capital for construction projects in the steel, cement,
electrolytic aluminum and real estate (excluding affordable
housing) by 15 percentage points. The examination and approval of
any new project in these sectors must strictly follow newly
released policies and entry standards on environmental protection,
safety, energy consumption, technology and quality of products.
Fifth, the government has strengthened the coordination of coal,
electrical power, oil and transportation to maintain the link
between supply and demand of major raw materials. It has also
reduced allocation quotas for consumption of electricity, oil and
coal for companies that fail to meet industry entry standards.
Sixth, the government has taken a series of policy measures to
encourage grain production, including direct subsidies, seed
subsidies, exemption of agricultural taxes and price control on
agricultural production materials.
Since China has adopted different policy measures to different
industries and has implemented moderate macro control, it has
successfully halted sharp declines in grain sowing areas and in
grain output in the previous five years. On the other hand, the
government has also put a lid on surging investment in fixed
assets, excessive expansion of some industries and runaway bank
loans. These efforts of macro control have already paid off as
dramatic ups and downs of the overall economy are being
avoided.
The Chinese economy still enjoys vigorous growth. In 2004,
China's GDP grew by 9.5 percent, government revenue by 21.4 percent
and profit of industrial enterprises by 38.1 percent.
Despite achievements in macro control, we are fully aware of the
deep-rooted problems of the Chinese economy. We believe that blind
investment and lopsided economic expansion will not be eliminated
at root level without solving problems in economic structure,
economic mechanism and modes of growth. Without solving these
deep-rooted problems, disturbing factors in economic development
are liable to pop up again at any time. Close attention must be
paid to this.
A woman in Nanjing shows her certificate
after taking part in a reemployment training program. She will work
as a housemaid.
