Asia Times: China: Crisis, what crisis?


	August 8, 2001	atimes.com

China

China: Crisis, what crisis?

BEIJING - In the first half of this year, China's economy grew by 7.9 percent, and although that is not excessively high compared with its pace over the past two decades, it's still appreciable considering how neighboring Asian economies have fallen to another low after the 1997 financial crisis.

This time the world economic environment, instead of internal problems as they were in 1997, is to blame for the slump. This is exactly why China is able to distinguish itself from other Asian countries - domestic demand accounted for 93 percent of the fuel that drove its growth, according to official statistics.

In fact, China has largely relied on expanding domestic demand to keep its economy growing at a fast and steady pace over the past years. This has been made possible by China's large market and the government's proactive financial policies aimed at stimulating domestic demand. And, this is why some economists assert that even if the country's export business suffers the worst setback, it can only affect China's economic growth by 1 percentage point at most.

How far then, will domestic demand be able to push China's economy? This has become a common concern of economists, who have been presenting different opinions on this topic from different point of views. However, there is one common understanding: In the foreseeable future, domestic demand remains the major driving force behind China's economy, and the economy is proceeding into a developing period of comparative stability.

When giving a report on the 10th Five-Year Plan (2001-05) earlier this year, Premier Zhu Rongji clearly pointed out that the principle of expanding domestic demand will continue to be adhered to, and the proactive financial policy will be continued as well.

Export and domestic demand are major factors affecting a nation's economic growth. Experts held that given the current international economic environment, China's exports will decrease somewhat, but it is expected to be offset by the growth of domestic demand, and it's unlikely that the economy will undergo wild ups and downs.

China's investment in fixed assets has been burgeoning for quite a few years, and it is expected to maintain growth momentum in the coming few years, with the gradual input of capital financed through treasury bonds issuance. In addition, increasingly more international capital is targeting the Chinese market, and direct foreign investment is expected to maintain a high growth speed.

With a population of up to 1.3 billion, China boasts a consumption market that is enviable to any other economy in terms of scale and growth speed, and in recent years new consumption areas such as home appliances, housing, education, motor vehicles and tourism are emerging one after another. What is worth noting is that China's residents have deposited more than 7 trillion yuan (US$846.7 billion) in banks, which contains huge consumption potential. Considering that farmers are enjoying a better income environment and the government has announced its plan to increase employee's incomes, this potential will be gradually improved.

Still, there are several independent beneficial factors expected to support China's economic growth, one of which is Beijing's success in bidding to host the 2008 Olympiad. Beijing has announced that it will contribute 280 billion yuanto build infrastructure projects for the Games. Statistical officials predict that investment and consumption related to the Olympics will contribute 0.3 percentage points to national economic growth.

Development of the country's western parts is another important source of growth for domestic demand. According to the 10th Five-Year Plan, the state will increase investment in western regions and will make efforts to channel social capital and foreign capital to the west. The building of a number of key projects in the west has already started or is about to start.

Yet many economists believe that too many restrictive factors have hampered the unleashing of domestic demand potential. They say the state should allow non-government capital to enter more areas, improve the financing channels for medium-sized and small enterprises, encourage and guide social investment, and continue to improve policy measures to encourage consumption.

Renowned economist Fan Gang concluded on the basis of various factors affecting China's economy that in the coming few years, China will experience a steady growth period with neither inflation nor deflation, and the growth rate will average at 7.5-8 percent.

(Asia Pulse)

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