Characteristics and trends of China’s current economy

Characteristics and trends of China’s current economy

The Economic Daily released on Monday, November 21, the research report of the Development and Research Center of the State Council on the analysis of China’s economic trends. This report looks at the current economic characteristics and makes some relevant suggestions. The report indicates that based on China’s chief economic statistics such as GDP, investment, CPI and PPI, China’s economic growth has decreased from its peak in the fourth quarter of 2003. The report adds that China’s economy is now in a relatively stable period. For example: 1. The growth rate of GDP has been stable at the level of 9.2 to 9.6 percent for five consecutive quarters. The growth rate of profit of industrial enterprises decreased to the level of the Jan-Aug period, i.e. 20.7 percent; the growth rate had been 45.7 percent the previous year. The decrease was reasonable, and it even increased slightly compared to earlier in the year. 2. Through the first nine months of this year, the growth rate of fixed assets investment was stable at 27 percent, down from 47.8 percent in the first quarter of 2004. The investment framework is currently being restructured. The growth rate of investment in industries such as real estate, iron and steel, construction material, petrochemical and electricity has obviously decreased. On the other hand, investment in machinery, agricultural and subsidiary products, mining and utilities has accelerated. 3. The demand for consumption steadily increased. The growth rate was stable at 11 percent in the first eight months if inflation is not taken into account. This figure is somewhat higher than the average growth rate of 10 percent since 1996. Some recent trends in China’s current economy include: 1. A multitude of non-governmental investments. Through the first eight months of this year, the growth rate of urban fixed assets was 27.4 percent, up 3 percent compared to early this year. The growth rate of investment from state-owned companies and state-owned group holding companies was 11.7 percent, while that of the previous year was 57.8 percent. Additionally, in the first seven months, foreign direct investment decreased 3.4 percent. Under these circumstances, the rise in the growth rate of fixed assets investment shows that the growth rate of domestic non-governmental investments increased sharply, which played a positive role in keeping a stable investment environment. 2. New market trends in the development of regional economies. The economic growth rate in central and western China is faster than that of coastal areas. Moreover, the economic growth rate in northern coastal areas is faster than that of central and southern coastal areas. 3. The rapid growth rate of exports will continue, although China is facing trade friction such as quotas on textile products. The report cites the following problems in China’s current economy: 1. The excess capacity in the raw material industry is serious, especially for finished steel, electrolytic aluminum and flat glass. 2. High international oil prices 3. It is difficult for rural dwellers to increase their income. 4. The trade surplus sharply increased this year, and the international balance of payments is skewed. The report suggests that the macro-economic policy should be stable. The 2006 macro-economic control and regulation targets are as follow: The growth rate of economy is expected to be 8 percent; the increase range of consumer prices will be within 3 percent; and a stable upward trend of investment should be maintained in order to keep the international balance of payment in line. SteelOrbis Shanghai