How fast is too fast? How hot is too hot? These are the
questions puzzling economists watching China's economy.
The National Bureau of Statistics (NBS) reported an annualized
GDP growth of approximately 11.1 percent in the first quarter. This
rendered the government's yearly GDP growth target of 8 percent,
made only one and half months ago, obsolete.
The country's three major urban powerhouses exceeded that
growth. Shanghai grew at 12.6 percent, Beijing at 11.9 percent, and
south China's province of Guangdong, known for its Pearl River
Delta, grew a staggering 13 percent.
How should China evaluate the current economic trends? Chinese
economists were divided at last Friday's forum at the Chinese
Academy of Social Sciences.
In truth, not much can be done at the moment to either cool down
the stock market, slow the influx of foreign direct investment, or
even cool city real estate prices. Those markets have grown so
large that administrative intervention can no longer bring about
the changes seen in the 1980s and 90s.
China is at a stage where harsh control measures are
unwarranted, or at least debatable, while moderate adjustments are
often unable to yield the expected results.
China has a few options to keep its economy on the fast track
but with less risk. One of the options is to further decontrol
prices for energy and other key resources. Doing so will not only
help moderate the growth rate but will also make the economy more
efficient in its use of energy and natural resources. It will also
make the economy more competitive in the long run.
Nothing else will cool investors' exuberance over China's
equities.
Evidence can be seen in the stock market's pre-emptive sell-off
(a fall of 163 points in the Shanghai Composite Index) on Thursday,
in anticipation of the NBS release of first quarter results. This
was followed by the dramatic 135-point rise on Friday, after the
government refrained from taking harsh measures to rein in the
economy.
At 3,580 points, the domestic yuan-denominated A-share market
index is now 35 percent higher than at the beginning of the year.
It is likely that the index will climb to 4,000 in just a few
weeks.
Investors are aware of the big picture. They know their money is
used to utilize the largest labor pool on earth and some of the
best public infrastructure existing in the developing world. If the
economy can manage to stay out of trouble, it will keep generating
high growth rates for many years to come.?
It would be both useless and unnecessary to try to challenge the
logic of this picture. China's tremendous growth potential is bound
to attract investors. They know that attempting to keep growth to a
specific speed cannot succeed.
Having said this, it must be pointed out that in other areas,
such as energy conservation, not only can government- assigned
targets work, but they can help the economy in the long run.
The NBS first quarter report indicates that industries with high
energy demand have been growing at 20.6 percent annually, among the
fastest parts of the economy.
These industries include petrochemical and chemical,
coke-making, fuel processing, and metallurgical production and
processing. Raising energy prices is the most effective way to curb
investment in these industries.
One may ask why, as the GDP was rising at more than 11 percent
one year ago, the consumer price index (CPI), a measure of
inflation, remained at a relatively low 3.3 percent in March.
Although economists consider this rate excessive, I tend to think
that part of the threat of inflation is offset by cheap
resources.
(China Daily April 23, 2007)