Embrace the opportunities

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By Chen Dongqi (China Daily)
Updated: 2009-06-01 17:27

Editor's Note: China Business Weekly launches its "Opinion Leader" column today. Every week we will invite economists, business leaders and policymakers to look at core issues both in China and the rest of the world.

In this issue, Chen Dongqi, vice-president of the Macroeconomic Research Academy of the National Development and Reform Commission, sets out his version of the V-shaped recovery he expects to see in China's economy. He also expects new energy, new medical treatment and new material technologies to become the drivers of China's future development.

In the 1980s, Chen gained prominence by insisting that China should tackle the problems of unemployment and price fluctuations on its way to the market economy. He is also the author of a number of books.

He is famous for economic strategic research. Because of his achievements in this field, he was chosen to give a lecture at a study session of the Political Bureau of the Communist Party of China (CPC) Central Committee in 2005 on China's strategic development.

Thanks to a recent lightening of my workload, I have found myself obsessed with two old hobbies: watching TV and films.

The blockbusters are put on the screen in their droves and every time I go to the cinema, it is crowded with moviegoers. Then, late at night, with the remote control in my hand, my eyes are glued to entertaining TV programs from up to 300 digital channels from all across China.

From these phenomenal scenes, I can draw the simple conclusion that many Chinese consumers are gradually moving to the upper end of the consumption chain after being fed enough and clothed warmly during past three decades.

And even against the backdrop of the global financial crisis, the voracious entertainment consumption of millions of moviegoers and pay-TV viewers like me shows no sign of abating. As an economist, I regard this as an important signal that confidence is growing among Chinese consumers.

And official statistics also point to this. In China, retail sales maintained solid growth, rising year-on-year by 14.8 percent in April to 934.32 billion yuan. The growth rate was 0.1 percentage point higher than that in March. And retail sales totaled 3.87 trillion yuan from January to April, up 15 percent over the same period last year.

With auto sales slumping in the rest of the world, it is exciting to see that more than 1.15 million vehicles were sold in April in China, up 25 percent year-on-year. And there is no doubt that auto sales will experience double-digit growth this year in China thanks to the implementation of more supportive government policies.

The China Banking Regulatory Commission recently promised that consumers would get loans to buy durable goods, including appliances and electronic products, as well as for travel and education.

And there is fresh evidence that industry executives' confidence is also growing. An index based on a survey of industry executives conducted by CLSA rose to a nine-month high of 50.1 in April from 44.8 in March.

It was the first time since July 2008 that its Purchasing Managers' Index (PMI), designed to provide a timely snapshot of manufacturing conditions, surpassed the 50-point watershed mark. A reading above that level indicates expansion, while a figure below 50 signals contraction.

CLSA's findings were backed up by a similar survey by the National Bureau of Statistics. The official PMI remained above the boom-bust line of 50 for the second month in a row, rising to 53.5 in April from 52.4 in March.

Investors in the stock market are also in good spirits, while the Shanghai stock market has taken heart from bullish surveys and statistics, rising about 75 percent during the past seven months.

I am quite impressed with this improvement, which shows the positive impact of the government's 4 trillion yuan stimulus plan and new lending by China's State-owned banks.

All of these surveys support my view that the economy is starting to pick up.

V-shaped recovery

A debate is taking place on whether China's recovery will be L, V or W-shaped. I strongly believe China is experiencing a V-shaped recovery, although this will be asymmetric. The bottom was experienced in the first quarter of the year, which registered year-on-year economic growth of 6.1 percent.

The downturn, which started in the final quarter of 2007, was quicker than usual. Downturns in China's economic cycle during the past three decades usually ranged from two to three years, but this time it took less than two years.

As for the upturn, I am ruling out the possibility that there will be a second trough soon in the growth curve, despite the fact that weak activity in the private sector, slow growth in incomes and continuing uncertainty in the global economy remain factors that will impact on China's economy.

What I am hoping for is that the upturn is gradual. During the last economic cycle, China witnessed a high rate of growth from 2003 to 2007, with the economy expanding by over 10 percent annually.

I have designed an asymmetric V-shaped growth curve to help China shake off the impact of the financial crisis.

I believe that a small crisis leads to small opportunities and big challenges result in big chances. The United States enjoyed a three-decade economic boom after the 1929-33 Great Depression. After the Asian financial crisis of 1997, China reformed its State-owned enterprises and ushered in a real estate boom, which laid solid foundations for sustained economic growth.

As this round of crisis, which is shorter than expected, is coming to an end, China's decision-makers should think carefully about how to balance short-term development and their long-time strategy.

In terms of short-term policy, I think China should speed up the deregulation of resource product prices and reduce industry monopolies by lowering the threshold on investment in infrastructure construction, effectively ushering in private investment in monopoly sectors such as railways, aviation and energy.

The time is ripe to reform the pricing mechanism for resource products as most of these prices have hit lows. Low oil prices, dipping to around $60 a barrel, and the steep decline in the consumer price index (CPI), offer a rare opportunity for China to push ahead with reforms of the pricing mechanism for energy and resource products.

It is essential to establish a market-based price formation mechanism for resource products as soon as possible as this can better reflect market supply and demand, as well as the scarcity of resources.

I would like the government to keep up the momentum of infrastructure construction, which will create more jobs and bring greater convenience to millions of people, especially in western China.

We will build more roads, railways and homes sooner or later. So why not act when the prices are low? It's an economically rational choice.

What will be the major drivers of China's economy in the coming decades?

In the 1990s, the US administration sought suggestions from the Rand think-tank on what ought to be the economic pillars of American prosperity. Rand asked the US government to support information, biotechnology and materials.

As we know, the US greatly benefited from the information technology and Internet boom at the turn of the new millennium. It is also taking the lead in biotechnological and material research.

We have to admit that China has missed many opportunities. Considering China's new stage of development and its competitiveness, I am proposing three areas that the country should pay special attention to - new energy, new medical treatment and new materials.

The reasons are quite simple.

We at least need new environmentally friendly fuel to power our cars, as car ownership is becoming a reality for many Chinese families.

And we need better medical treatment as nearly 15 percent of the Chinese people will be over 65 very soon and their life expectancy will be greater.

Resources are limited and new materials such as nanotechnology should be developed to replace them in order to meet growing demand.

The sun will shine soon after storms and downpours. Let's embrace the opportunities.

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