Will China secure 8 percent growth?

In his 2009 government work report, Premier Wen Jiabao said that China is aiming for 8 percent growth in its GDP this year. A reasonable pace of economic growth is essential for a populous nation to create jobs, increase urban and rural income and maintain social stability, Wen's report said.

As the global financial crisis worsens, China's export market shows no signs of recovery, and the results of boosting domestic demand are not immediately apparent. As a result, many investment banks and research institutions have downgraded their projection on China's GDP to under 8 percent. Under such circumstances, can China secure 8 percent growth this year with the help of the current stimulus policies? Experts gave different answers on the website of Caijing magazine.

Yes

Homi Kharas, senior fellow at the Wolfensohn Center for Development and former chief economist in the East Asia and Pacific Region of the World Bank:

China's advantages lie in its effective implementation of relevant policies. Its ample fiscal resources and limited debts will allow it to issue more government treasury bonds. With its colossal foreign exchange reserves, China does not need to worry about current account deficits. All of these indicate that China is better positioned than many other nations in fighting the global financial crisis.

On the other hand, China is still a country with many poor people. There is a huge demand for public facilities and services, most of which should be provided by the government. With plenty of fiscal resources, the Chinese government can spend more on infrastructure and on improving public services, as demonstrated by the mammoth economic stimulus plans. Different governments have different plans on what to do and what they are able to do. Take the United States as an example: It does have a stimulus plan. But people's immediate response to the plan is "Can you make it work?" There is little doubt about China's ability to make its plans work.

Fan Jianping, deputy director of the economic forecasting department of the State Information Center:

The nation's economic indicators in the past few months show that the impact of the financial crisis on the Chinese economy was larger than we expected. Although the big economic downturn has come to an end in China, there are still not enough signs to show that the economy has picked up. One of the most cited indicators, Purchasing Managers Index (PMI), was just introduced to China and has not been tested by enough economic cycles. It cannot be considered as one of the key economic indicators for the Chinese economy. The more reliable data are new real estate development, iron, steel and cement production and corporate inventory.

The central government has worked out a raft of stimulus policies to prop up the slowing economy. It needs some time for the effect of these policies to be seen in the economy. If these policies are well implemented, I think economic growth is bound to return to the upward track and reach 8 percent in 2009. Currently, China's potential economic growth rate is still around 9.8 percent. Due to the global financial crisis, real GDP growth will be lower than the potential growth, but not significantly thanks to the country's solid economic basis.

No

Wang Tao, chief economist of China region with UBS Securities:

Most non-governmental analysts' projection on China's economic growth in 2009 is lower than the government-targeted 8 percent growth. The UBS forecast is 6.5 percent, which is largely based on the economic recession of US and Japan.

I believe the real estate sector will rebound in the second half of this year. If not, the economy cannot reach a growth level of 6.5 percent. Investment in the manufacturing sector is bound to decline. Weaker exports and increasing job losses will depress consumption. Under such conditions, the only economic driver is infrastructure investment and government policies.

Due to the government-led stimulus package, we saw massive infrastructure investment supported by robust credit growth in the past few months. But the ultimate demand, which could continue to fuel China's economic growth, comes from households and enterprises. If enterprises are reluctant to invest and consumer consumption remains weak, China could hardly achieve a sustainable economic growth.

Zhang Zhuoyuan, researcher with Chinese Academy of Social Sciences:

Premier Wen said in the government work report that China's fiscal deficit would reach 950 billion yuan ($139 billion) in 2009, the highest in six decades, which tripled the record level posted in 2003. Despite the increase, China's fiscal deficit as a share of its GDP is still below the 3 percent "warning line". Outstanding treasury bonds accounted for about 20 percent of GDP, which is within the affordable range. Moreover, the government's forceful measures, such as the 4 trillion yuan stimulus package, would also help China reach the 8 percent annual GDP growth this year. Still, I am not that optimistic. My concern is, if the economy goes up due to the stimulus policy this year, will it maintain its momentum next year? We should try our best to avert a second economic slump next year, as it could force the government to fund a second round of stimulus programs.

At present, there are no signs of an overall recovery of the Chinese economy. Although the deceleration of some economic indicators has recently moderated, the overall economic outlook is still grim. As the Hong Kong-based newspaper Wen Wei Po reported, the bleakest estimate on Guangdong's economy is that it can only attain 6 to 7 percent growth this year, well below its 10.1 percent growth in 2008.

(China Daily 03/30/2009 page2)