'Still more is to be done to boost growth'

Is the People's Bank of China ready for another cut in banks' reserve requirement ratio to release more credit supply for the economy?

How fast will the central government roll out its additional incentives to encourage small enterprises' reinvestment and consumer spending?

These are the key questions Chinese economist are asking at the moment, as well as arguing that, besides the interest rate cut on June 8, more just has to be done to help China maintain enough economic growth in such a difficult time for the global economy.

Partly affected by weak global demand and partly due to the clumsiness in shifting to a consumption-driven growth model, many economists share the view that China's whole-year GDP growth rate will be lower than last year by around 1 percentage point.

A commentary on CNFOL.com, a financial information website, forecast that after China's GDP growth fell from last year's 9.2 percent year-on-year to 8.1 percent in the first quarter, it would continue to decline to around 7.5 percent in the second quarter.

In comparison, an analysis by China Securities Co Ltd forecast China's GDP growth at 7.8 percent in the second quarter, 7.8 percent in the third quarter, and 7.9 percent in the fourth quarter.

On short-term prospects, Economic Information Daily quoted Fan Jianping, a forecasting specialist with the State Information Center, as saying that the gradual easing up of credit supply in the last few months has "yet to yield the positive effect" expected by policymakers on industry, investment and consumer spending. May's economic data was "not promising", he said.

Growth in industrial output, for instance, remained under 10 percent year-on-year, only enough to sustain GDP growth at roughly 7.5 percent.

Retail business growth was also sluggish. It was 14.1 percent in the first four months, but fell to 13.8 percent in May.

The sale of most items saw a slowdown, Economic Information Daily reported, with gold and jewelry being the only exceptions.

Nationwide, no remarkable increase was seen in either investment in fixed assets or real estate development.

For example, the construction of many major railway projects were either scaled back or halted, according to Zhao Xiao, a professor at the Beijing Institute of Technology and former director of macro-economic strategy with the National Development and Reform Commission research center.

The draft amendment to China's budget law, which is being reviewed by the National People's Congress Standing Committee, is set to tighten local governments' bond issuing terms.

If that amendment is passed, it would be even more difficult for the railway authorities to form partnerships with provincial governments for their capital contribution.

Even though the government is courting individual investors in new railway development projects, among the many recent policies in favor of private companies, a quick turnaround of the situation is unrealistic.

It would take time for private entrepreneurs to muster enough courage to enter the highly indebted railway industry, even though they are welcome, and will probably take an even longer time for them to reap positive results.

In real estate development, according to Sun Yongmei from the Institute of Chinese Economic Reform and Development at Renmin University of China, the recent interest rate cut may have emboldened some people to raise housing and rental prices.

But the government ought to be concerned once that occurs, and will have to take enough action to prevent the real estate market from becoming speculative again.

In an initiative by the central government, all major Chinese cities have imposed heavy restrictions on their housing markets for around a year, in response to the widespread complaints about the rapid rise in prices.

At the same time, many economists argue that inflation is already not the biggest threat.

In May, the country's CPI, one of the major measurements of inflation, was only 3 percent.

Hu Chi, a researcher with the NDRC research center, forecast that at least in the next few months, China's CPI would be on a downward trend thanks to the stabilization of food prices and the lessening of "imported inflation", as reflected by the lower price of the crude oil.

China will stand a good chance, Hu said, of achieving its annual target of keeping inflation below 4 percent for the year.

But to spur growth, cutting the interest rate alone may not be enough to deliver the expected results, economists said.

Monetary policy adjustment should go hand in hand with the right government fiscal policy, said Cai Zhizhou, a Peking University professor of economics. And it is fiscal policy that may have a more direct effect on the economy.

What Chinese economists call fiscal reform usually means tax cuts for the economic sectors that would serve as the future growth engine. They call doing so a structural tax cut, because that way the economy's structure could be rebalanced.

While forecasting that GDP growth would fall below 8 percent year-on-year in the second quarter, Chen Dongqi, another economist with the NDRC research center, warned that "things would get serious" if a parallel decline would continue for both GDP and CPI. That would require the central government to take stronger pro-growth measures.

Chen added that, in order for China to be able to maintain an adequate level of growth, the best thing the government can do is a tax cut.

Zuo Xiaolei, a veteran economist with Galaxy Securities Co, said that the most effective short-term support to growth would probably be to support small and medium-sized enterprises with orders from overseas.

Don't forget, she said, that SMEs account for more than 60 percent of national GDP and more than 80 percent of China's urban employment.

From the Press