--During a recent interview with
the press, Prof. Wu Jinglian, research fellow with the State
Council Development Center, analyzed China's economy, with
focus on the capability and potential of growth, as well as
the trend of future development.
High Value Involved
in an 8% Growth
After the outbreak of the
Asian financial crisis, China faced such problems as
inadequate domestic demand, a weak market and a declining
growth rate. Beginning in 1998, the Chinese Government
adopted a series of measures to tackle these problems. What
is the situation today? The situation between 1998-99
characterized by inadequate demand on a serious scale has
changed considerably, and the country's economic growth has
picked up gradually, reaching 8 percent last year. The
actual rate may be higher, and the quality of growth is
better than that in the previous 10-odd years. This means
that the 8-percent increase is of a high value. Domestic
demand, however, remains low, as shown by a decline in the
general price level last year. The country still has not
cast aside the shadow of deflation.
Basically, there are two
factors promoting economic improvement and accelerating
economic growth: first, government fiscal and monetary
policies designed to stimulate demand; and second, favorable
policies to enhance the vitality of enterprises that serve
as the supplier. The latter policy, however, is often
neglected. Following the development of state-owned
enterprises, private enterprises have made more energetic
progress. Coastal areas, the Yangtze River Delta, the Pearl
River Delta, and Fujian and Shandong provinces have played a
major role in driving up China's economic growth as a whole.
These localities share a common characteristic, namely, the
formation of a pattern facilitating the joint development of
economies of all forms of ownership.
Inaccurate Prediction, Why?
Some issues seem to have nothing to do with the
vitality of the micro-economy. The fact, however, is just
the opposite, like increases in exports. It was predicted
that the overall situation in 2002 would sour. However, the
export trade did very well that year, relying on
foreign-funded and private enterprises. Since non-public
enterprises were permitted to handle foreign trade in 1999,
the volume dealt with by them has increased
continuously.
In the first quarter of last year, predicting a
second-round economic recession in the United States, quite
a number of government officials and the media were very
pessimistic about last year's economy. The result at the end
of the year, however, was quite different. The misjudgment
is mainly due to neglect of the aforementioned second
factor. A correct analysis of both factors will help derive
a relatively accurate estimation of the future economic
development.
Economic growth for this year is expected to reach
7 percent. Prof. Wu thinks the rate may be higher, at least
coming to 7.2 percent--an average annual growth rate for
quadrupling the GDP in 10 years. An 8-percent increase is
possible if our work is well done, said Wu. According to the
estimation of some research institutions, China's potential
growth rate for this year is between 8-9 percent on
condition that there is neither inflation nor deflation
triggered off by inadequate demand.
Worries Behind
Success
China is expected to maintain a high
growth rate in the coming three to five years. However, some
contradictions, having accumulated for a long time in the
past, harbor big risks. The most threatening risks include
the following:
First, risk of the banking sector. The
risk is directly revealed by state-owned banks' possession
of a huge amount of non-performing assets. Since the late
1990s, the Chinese Government has adopted a series of
measures to guard against the risks of the banking sector.
These measures, however, are far from enough. According to
figures released by relevant departments in 2002, the four
major state-owned commercial banks still reported a huge
amount of non-performing assets after several years of
efforts. Except for the Bank of China, the three other large
commercial banks all registered a capital adequacy rate that
is lower than the rate required by the Basel Agreement.
Reform in this field is being quickened. First, the speed
for the reorganization and listing of the four major
commercial banks has been stepped up. Second, shareholding
banks have become popular. Third, state-owned banks have
opened their doors to non-governmental capital. Meanwhile,
reform of banks at and under the county level is
underway.
Second, financial risk. Last year, the ratio of
China's financial deficits to the GDP exceeded 3 percent,
reaching the acknowledged alarm line. Prof. Wu said the
figure, not precisely calculated, only provides a data by
experience that warns people to be on the alert. In China's
2003 budget, the ratio is reduced to less than 3 percent,
showing that relevant departments have taken note of the
problem. Another alarming line was set for the ratio of
government loans to GDP. The current ratio of China is 40
percent, and it is also a data processed by experience. As
shown in the accountant book, the ratio stood at 17 percent
in 2002. Superficially, it looks all right. However, the
accountant book records obvious debts only, and liabilities
known as probable debts may exist.
Third, risk on the capital
market.
In a word, in a sound economic situation, adequate
importance should be attached to the risks that have
accumulated for years in financial sectors, including
state-owned banks, exchange markets and the state
treasury.
Developing Private
Enterprises
To maintain a high growth rate, it is
necessary to further expand domestic demand. At present, the
low income of farmers is a major impediment. Of course,
measures can be introduced to stimulate urban residents'
consumption. But, the income gap in many cities is being
enlarged. While the low-income people are short of money for
consumption, many high-income people find no outlets for
their money. The root cause for a Iow consumption level lies
in problems related to agriculture, rural areas and farmers.
If each farmer spends 10 yuan more, an additional 9 billion
yuan will be spent.
To solve the problems related to
agriculture, rural areas and farmers and urban employment,
the key lies in developing small and medium-sized private
enterprises. As there are too many people fed by
agriculture, it is difficult for farmers to become affluent.
Furthermore, China's agricultural resources are under the
global average level. It is unrealistic to increase
consumption considerably without transferring rural
residents to non-agricultural sectors. Jobs should be
provided for farmers leaving the land. In recent years,
noticeable results have been achieved in increasing job
opportunities. Small and medium-sized private enterprises
offer a tremendous potential in this respect.
Curbing
Market Economy's Bad Effects
Prof. Wu is
optimistic about China's future economic development.
Nevertheless, he calls for attention and measures to solving
existing problems, as some of them are on the rise. The
counter-measures include both economic and political and
legal means. There is a saying that market economy is not a
good economic structure, but has the least shortcomings as
compared with the existing and prospective economic
structures. To develop a market economy, it is necessary to
promote its advantages and prevent its disadvantages. At
present, defects of the market economy, such as disorder,
wealth gap and corruption, have not been thoroughly
eradicated. The 15th National Congress of the Communist
Party of China (CPC) set the goal of building a country
ruled by law. The 16th National Congress of the CPC called
for efforts to advance political restructuring and build
socialist political civilization. Progress in this field
will provide more effective guarantees for the sustained and
rapid growth of the national economy.
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