Macro economy is 'sound and stable'

(China Daily)
Updated: 2006-11-27 08:33

China's macro economy has remained sound and stable with the trend of overheated growth being reined in during the first three quarters, said the National Bureau of Statistics (NBS).

"Overheated economic growth is being put under control with decline in the growth of major economic indicators," said Li Xiaochao, a NBS spokesman.

Official statistics show the growth of fixed assets investment in urban areas in the first 10 months was 4.5 percentage points lower than the same period last year.

Industrial production, which plays a leading role in economic growth, showed a sharp drop in growth and a steady increase in profits.

Official statistics show the country's industrial production grew by 14.7 per cent year on year in October, compared with 19.5 per cent in June. Meanwhile, profits rose 30.1 per cent in the first 10 months, compared with 28 per cent in the first half year.

The galloping expansion of China's bank loans has been controlled with the growth of the broad money supply, or M2, dropping from 18.4 per cent in June to 16.8 per cent in September.

Material prices rose slowly and the energy supply improved considerably. A survey by NBS showed most large and medium-sized enterprises did not consider tight energy supply a major factor in restraining their business development in the third quarter.

Analysts say regulation by market forces is not enough to slow the economy, and it should be combined with fiscal and administrative measures.

Li said China's macro economic regulation has been timely, effective, and without drastic fluctuations.

"The macro economic regulation policies will continue and remain stable in the fourth quarter and the near future to build a solid foundation for economic development next year," said Zhu Hongren, a senior official with the National Development and Reform Commission.

However, the growth of fixed assets investment and bank loans is likely to rebound, the imbalance of international payments is widening, and the environment is still under threat.

Divided views

Amid signs of a possible slowdown in world economic growth next year, Chinese and overseas experts are divided about whether China should beef up macro-economic controls.

Some experts advise the government to adopt a cautious approach to macro-economic control policies because the year 2007 may see a slowdown in the world economy after fast growth rates for three years.

"Next year may be a turning point, in which case the biggest challenge for the Chinese authorities will be the possible overlap of slowdown trends in China and in the world," said Qu Hongbin, chief economist of the Hong Kong and Shanghai Banking Corporation (Asia).

As the impact of this year's macro-economic control policies will not be fully felt until next year, further curbing investment and exports may amplify the consequences of a slowdown in the world economy, he explained.

"If economic growth in the United States drops 3.5 per cent to 2 per cent next year, China's export growth will fall from 30 per cent to 15 per cent, which will mean a decline of three percentage points in the growth of gross domestic product," Qu told a recent forum on China's economic prospects in Beijing. He said an export slowdown would translate into less income, less expenditure and fewer jobs.

However, Bert Hofman, a leading economist on the Chinese economy at the World Bank (WB), disagreed. He said China's exports would not be seriously impacted by a slowdown in the US economy.

In an earlier WB report, Hofman said the growing trade surplus would aggravate the country's over-reliance on foreign trade and investment and suggested China rebalance its economy by boosting domestic consumption.

Chief economist Cao Yuanzheng of the Bank of China International agreed with projections of a slight fall in China's trade surplus. Apart from the impact of the slowdown of foreign economies, rising global energy prices and the phase-out of tax privileges for foreign-invested companies and certain export-oriented businesses will be factors.

"If China's economy starts to slow down next year, an overcapacity problem will appear the year after next,?he said.

Cao said the best policy for the Chinese Government was to maintain the current level of macro-economic control. "Don't jam your foot on the gas or the brake, just maintain the current speed," he said.

But Wang Tongsan, director of the Quantitative Economy Institute of the Chinese Academy of Social Sciences, claimed current macro-economic control was "far from satisfactory."

"Investment and money supply are still growing rapidly while property prices remain high," he said.

Given that the previous slowdown in the early 1990s and in 1998 both stemmed from tougher macro-economic controls rather than external factors, Wang stressed the necessity of keeping alert to signs of decline.

"The key is to apply the right macro-economic adjustment policies at the right time," he said.

After China tightened control of the money supply and adopted a battery of industrial policies to cool the economy, growth dropped from a blistering 11.3 per cent in the second quarter to 10.7 per cent in the first nine months.

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