BIZCHINA> Review & Analysis
Necessary slowdown
(China Daily)
Updated: 2008-07-01 11:20

With the passage of the eventful first half of 2008, China is now rolling out the red carpet for the approaching Olympic Games and braces itself for the celebration of the 30th anniversary of reform and opening-up that falls later this year.

The current slowdown of the Chinese economy certainly looks out of step with the upcoming historic events.

However, after double-digit growth over five years in a row, the Chinese economy has just cooled in a way better than expected in the past six months. And it is believed that the deceleration will create needed room for maneuver to strike a subtle balance between inflation and sustainable growth.

For Chinese policymakers, this year began as the toughest one in a decade.

Against the backdrop of a US-led global slowdown and soaring domestic consumer inflation, China's economy entered 2008 with a much dimmer outlook. It was widely expected that its GDP growth would fall to a single-digit rate.

Unexpectedly, a number of severe natural disasters have only made matters worse. It was first the worst snowstorms in 50 years that hit hard central and southern China at the beginning of this year. Then came the earthquake in May that rocked southwestern China killing tens of thousands of people, and now the heavy rainstorms and flooding in the south that have affected millions of residents.

Such headwinds have put the resilience of the Chinese economy to the test.

There are already plenty of emerging concerns about China's growth.

In May, fixed-asset investment in real terms fell among the lowest in five years while retail sales growth remained not much higher than in past years.

Industrial profit growth halved on record oil and coal prices and trade surplus shrank by 8.6 percent in first five months over the same period last year.

Besides, the domestic stock markets have lost almost 60 percent of their value since last October.

Yet, in spite of all these signs of weakness, the Chinese economy is actually faring better than expected. Because the current slowdown has allowed policymakers to make significant progress in the head-on fight against inflation.

By firmly sticking to its anti-inflation policies, the country has effectively brought down consumer inflation from a 12-year-high of 8.7 percent in February to 7.7 percent in May. Some reports even indicate that inflation has fallen further in June.

China's economic slowdown in the first half of the year must have unevenly affected a number of domestic industries and enterprises. But the progress in reining in runaway inflation will prove more important to the country's sound and stable economic growth.

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