China busy with damage control

By Xin Zhiming (China Daily)
Updated: 2008-10-27 07:51

Demographic evidence

Demographic statistics also point to economic weakening in 2008-2010, as the ups and downs in the number of different age groups affect demand for economic activities, says Dong Xian'an, a macroeconomic analyst with China Southwest Securities.

Generally, people start to work between the ages of 20 to 24 and those people are also a major driving force for consumption. From 2005 to 2008, for example, the number of China's young people increased rapidly, which contributed to the economic boom during that period, Dong says.

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But between 2008 and 2010, demographic experts say that the number of workers aged 20-55, except those between 45 and 49, will drop dramatically. "It will adversely influence consumption and labor supply," Dong says. As consumption weakens, the most affected areas are real estate and autos.

Meanwhile, the population aged over 55, most of whom rely on social security and do not work, will increase rapidly.

All these statistics are bad news in terms of China's domestic demand and the overall economy, Dong says.

Silver lining

"After three decades of great economic success, the Chinese economy is facing a major hurdle," says Tang Min, deputy secretary-general of the China Development Research Foundation. "But it could also be a good opportunity (for China to sharpen its competitiveness)," he told the Chinese Economists 50 Forum last week, which brought together top policymakers and economists to discuss solutions to the current economic woes.

"The financial crisis will definitely have some impact on the Chinese economy," says Liu He, deputy director of the Office of the Central Financial Work Leading Group. "But China is a very big country, which offers it much room to adapt to reduced foreign demand."

Moreover, China has ample deposits, providing potential liquidity for economic growth, analysts agree.

What makes China confident of maintaining sound economic growth is its fiscal prowess, says Zhuang Jian, a senior economist with the Asian Development Bank in Beijing. Although the country's fiscal revenue growth dropped to 2.5 percent in September from more than 30 percent in the first half of this year, Zhuang says the around 30 percent annual growth in its tax revenues over the past five years provides enough for any economic bailout plan.

"China's fiscal soundness has been much better than it was during the Asian financial crisis in 1997-1998," he says. Back then, China suffered from both sluggish domestic demand and a lack of liquidity, and it had to issue large amounts of treasury bonds every year to bolster economic growth. "Nevertheless, China got through that crisis."

This time, the Chinese government has issued a number of policies to relax lending, increase export rebates and encourage home buying, and more are expected to be in the pipeline. Zhuang says the effect of those policies will be felt in the first half of next year.

UBS economists hold a similar view. "While China should certainly slow over the next few quarters, we also foresee stabilization and recovery by the middle of the year," says a UBS report. "We simply don't see any real possibility of a sudden breakdown or economic collapse."

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