Certainly sustainable

The Chinese economy has remained sound so far in 2008 despite natural disasters and the global financial turmoil. However, it will be put to a much more severe test in 2009.

Few previous years have been so dramatically changeable as 2008 as policymakers have had to promptly shift their focus - in just a few months' time - to holding back an economic downturn after preventing the economy from growing too strongly.

The Central Economic Work Conference earlier this month called for strengthened tightening measures to stem rising inflation and economic overheating, but the consumer price index, a key gauge of inflation, still rose to a 12-year high of 8.7 percent in February. Although the May 12 earthquake in areas around Sichuan temporarily shook people's confidence in short-term economic growth, China's GDP expanded by 10.4 percent in the first half of 2008, which was still impressive and about one percentage points higher than the average rate in the past three decades. It slowed to 9.9 percent for the first three quarters, but export growth remained strong at 22.3 percent year-on-year.

Until September, the government has been consistent in combating inflation and economic overheating, a legacy from 2007's scorching 11.9 percent annualized GDP growth. However, the Chinese economy made a sharp turn after the precipitation of nearly all economic indexs in October and November.

That U-turn is due to the worsening global financial turmoil, which began to bite into China's economy at the end of 2008. Exports for the first time in seven years fell by 2.2 percent year-on-year in November. Growth in industrial output and other indicators also point to an accelerating slow-down of the economy.

If a few months ago, some were still cherishing a vague hope that the Chinese economy could be different from the sagging world economy, that flicker of hope has dimmed.

The forecast for China's GDP growth next year has thus become bolder. The World Bank in November said its forecast is as low as 7.5 percent, well below the 9.3 percent forecast by the country's top think-tank, the Chinese Academy of Social Sciences. Domestic economists said it may be possible that the economy will expand by around 8 percent, believing the State-directed projects would bolster stable economic growth.

In December, Goldman Sachs led the international institutions to break the "record" by adjusting its forecast for China's growth in 2009 to 6 percent. Some economists have gone so far as to predict a 5 percent growth for China in 2009, a rate that would mean a broken economy.

They may have thought that the world economic woes would similarly keep Chinese policymakers at bay. But China does not lack cards to play. It has pulled out all stops to the economic slowdown by carrying out pro-growth monetary and fiscal policies. The $586 billion economic stimulus package, announced on November 9, will not only pour in capital, but also shore up investor confidence in the economy.

More importantly, the government is ready to hammer out more stimulus measures if necessary. It has become clear, for example, that the country will go on to cut taxes for both enterprises and individuals and subsidize the poor people to stimulate domestic demand.

China will ultimately prove unable to remain unscathed from the global economic slowdown, but it will not succumb to it, either. Its GDP growth may significantly slow next year, but it equally provides a precious opportunity for China to transform its resource- and export-dependent economy into one that is more energy-efficient and dependent on the domestic demand.

It will take years for China to accomplish the task of economic transformation, but it is the decisive way for it to re-gain growth momentum, one that may not be so strong as in 2007, but certainly more sustainable.

(China Daily 12/29/2008 page2)