China's economy has withstood rigorous tests in recent years in the complex and changeable international economic climate. In the first half year of 2008, China's economy maintained good growth momentum in spite of the global economic slowdown. However, as China's reforms deepen, some deep-seated problems such as the irrational investment structure and low quality growth are becoming more acute.
The latest meeting of the Eleventh NPC (National People's Conference) Standing Committee provided key summaries of China's economic activities and indications of possible macro-regulations in the coming period.
In the first half of 2008, China's GDP grew by 104 percent year on year, with the growth rate registering a decrease of 18 percent. Although there are widespread worries regarding the economic situation in the second half of the year, China's National Development and Reform Commission (NDRC) has explained that, because the basic economic situation still remains positive, even if the economy enters a new adjustment phase, Chinas' economy is most likely to maintain a growth rate of nine percent.
In July, compared to the average of the first six months, China's fixed asset investment in urban areas increased by 0.5 percent, while the growth rate of consumer good retail sales also speeded up by 0.3 percent. Furthermore, the national export volume even registered an increase of 93 percent in July compared to June. All these figures indicate that China's economy maintained a good development trend at the beginning of the second half of the year. As for inflation, although the CPI has dropped in the three months since May, the overall level is still high. And with the increase of the PPI, China doesn't get any chance to breathe a sigh of relief.
The tightening currency policy is one of the major macro-regulations currently being implemented by China's government. This measure is used to control overheated investment and speculation. At the present time, due to the global economic slowdown, some of the basis for the hot-money inflow from overseas to China has diminished. Thus, China appears to be adapting to a new situation in the near future, including the possible release of capital controls in order to maintain levels of foreign direct investment and of exports.
Once the restrictions on bank loans are relaxed to some degree, many local industries can expect to benefit. Furthermore, such a move will favor the recovery of the local iron ore and steel markets. However, the latest official indications are that the domestic real estate sector may be excluded from the relaxation of credit restrictions, for the government is maintaining its strict stance towards this high-profit sector.