No reason to raise alarm over growth

The unprecedented turbulence in the international financial market and a looming slowdown in the global economy pose a key challenge to the Chinese government on how to make a correct judgment about China's economic situation. Chinese companies too face a similar challenge in their decision-making. The challenges coincide with the emergence of an increasing number of uncertainties in the international economic context and some outstanding problems and contradictions in the national economy.

As the international financial tsunami runs amok, many at home conclude that the country's economy is on a downturn. In my opinion, however, the foundation of the national economy has not changed and we can still expect a sustained development in the future. This was also stressed in the communique issued after the third Plenary Session of the 17th Communist Party of China (CPC) Central Committee, concluded two weeks ago.

After the end of the 2008 Beijing Olympics and especially after the outbreak of the US financial crisis, many people held that China's economy would run downward as the pace of the world economy slows down. They even predict the country's economic growth in the coming fourth quarter would suffer a vertical drop. In their eyes, the global economic slowdown will immediately spread to the East Asian nation and post-Olympics effects, especially those negative effects brought by temporary measures adopted by the authorities during the Games upon the Chinese capital and neighboring provinces and cities, will show up in the following months.

The plummeting of the country's stock market is also thought to sabotage financing channels of some listed enterprises. In addition, the declining sales volumes in home transactions, according to them, will hinder the growth of the gross domestic product and fixed assets investment, which will plunge property-related industries into a further recession and contribute to the further decline of the whole national economy.

Obviously, their conclusions are founded on two hypotheses. The first one is that the US financial crisis will unavoidably result in a recession in global economy and such a recession is fatal to the export-driven Chinese economy. The second one is that compared with last year's, this year's economic data best demonstrate a downward trend of the national economy.

I have no comment on the first hypothesis given that the final effects of the ongoing financial crisis remain to be seen. Here I want to make clarifications on the second hypothesis, which concludes that the country's economy runs downward after comparing this year's economic data with last year's. But this begs one question: whether or not there was a bubble in last year's economic growth.

If there was a bubble, then this year's downward run of the economy would be very normal. It is known that the primary goal of the country's macro-control measures in the previous years was to curb the overheated growth momentum in the economy and the investment sector.

Now comes another side of the question. Could we hold on to such a high growth momentum longer if there was no bubble in last year's national economy?

We cannot repeat last year's conditions for this year's economic growth. The economy can only run on a track according to changing external and internal situations.

Last year's prosperity in the property market also created an unprecedented prosperity in some related industries. However, we have no similar conditions for a continued prosperity in this year's property market because enormous changes have taken place to government policy, financial market, profiles of self-accommodating homes buyers and their housing concepts. Under these circumstances, it is impossible to expect consumers to rush to buy homes with last year's price level when the property market shows strong signs of a slump.

Any judgment of the country's economic prospect should be based upon the analysis of whether or not the economy can keep a sustained development and of the country's effort to improve people's living conditions. Any deviations would easily lead to a conclusion not supported by the truth.

To get an accurate analysis of China's current economic situation, we should put emphasis on analyzing the influences of the turbulent international financial market on the country's economy, its efforts to restore investor confidence in the stock market and promote a healthy property market.

Recent developments show that the negative influences of the US financial crisis on the Chinese economy should not be underrated. We should make in-depth studies on its medium and long-term effects that are yet to show up. As far as domestic stock market is concerned, the country has made an array of favorable policies and measures, but we cannot expect to recover investors' confidence in the crispy market within a short period. Also, its failure to resume a healthy development, which caused it to lose financing functions, will surely produce an inestimable influence upon the whole economy.

We also need to answer the question whether last year's bustling property market accorded with the central government's aspiration to develop the property market mainly for people's livelihood.

Under the current precarious situations at home and abroad, we should make an objective judgment of the country's economic conditions and should not let some superficial and transient phenomena puzzle us.

The author is a researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences

(China Daily 10/24/2008 page8)