This, together with four interest rate hikes, has ushered in comprehensive credit tightening. Statistics show that China's loans in the first quarter decreased 300 billion yuan ($46.18 billion) from the same period last year, which, together with the decline of M1 and M2 supply, will help put a brake on the country's economic growth in the future.
This year marks the start of the 12th Five-Year Plan (2011-2015) period, during which the central government has promised to bring its fast-growing economy onto the track of normal, healthy and sustainable development, as China's annual average GDP growth rate of 10.48 percent over the past decade has brought various risks.
The decades-long emphasis on economic growth has resulted in the establishment of an extensive economic development model, featuring an excessive emphasis on industrialization, the development of heavy industries and an over-dependence on export and investment. Such a growth model has seriously endangered the country's environment, climate and over-exploited its limited resources.
The high-speed growth of the past decade has also affected the country's potential for future economic development. China's marvelous economic performance over the past decades has been based on its demographic dividend, its market-oriented reforms and globalization.
However, with the gradual loss of these advantages, China's growth is heavily dependent on the low-cost use of labor, land and resources, which is not expected to last much longer. The rocketing prices of global raw materials and huge pressures for the country to appreciate the yuan, accompanied by the growing difficulties in maintaining low wages, high energy consumption and a high export tax rebate, means China's quantity-based exporting sectors are under severe pressure from global competition.
Besides, China's ever-declining investment efficiency, its huge energy consumption as well as its lack of an all-inclusive welfare network, the polarization of the wealth distribution and the decrease in the middle class population are all signs that the country is being plagued by the "middle income trap".
According to the International Monetary Fund (IMF), China's per capita GDP was $4,382 in 2010, an income level that means a turning point for a country's economic development.
The slowed economic growth rate is expected to help China reduce inflation pressures to some extent and more effectively regulate its frenetic real estate industry. It is also expected to ease the country's monetary supply pressures. But these also mean that the country's economic development has entered a crucial "bottleneck" period.
To smoothly push forward long-overdue economic restructuring and survive the period of transition, some sweeping and systematic reforms are badly needed to bring the world's second largest economy onto a normal and sustainable track.
The author is an economics researcher with the State Information Center.
(China Daily 05/10/2011 page8)