Double-dip recession unlikely in China
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Xinhua, October 24, 2011
"Troika" shift gears
As the GDP growth moderated, the "troika" driving the economic growth, namely export, investment and consumption shift gears as export and investment slowed down while the consumption contributs more to GDP.
The main reason behind the fall of GDP growth lies in dwindling external demand and investment. September saw the trade surplus narrow for a second straight month to $14.5 billion with imports and exports faltered more than expected.
Exports in September rose 17.1 percent year-on-year, down from August's 24.5 percent.
For the time being, the world economy shows clear signs of downturn as the developed economies are struggling with debt problems and the emerging economies like India and Brazil are faced with high inflation pressures.
Adding to the woes, the fluctuating renminbi exchange rate and cash-strapped small and medium-sized enterprises are also a brake on the growth of foreign trade.
The 110th Canton Fair, which opened on Friday, has seen a reluctance on the part of both overseas buyers and Chinese exporters to confirm long-term orders, said MOC spokesman Shen Danyang said on Wednesday.
Zhang Yansheng, head of the Foreign Trade Research Institute of the National Development and Reform Commission (NDRC), is of the view that China's exports will encounter more uncertainties in the fourth quarter of this year.
Fixed-asset investment, a key driver behind economic growth, showed robust growth of 24.9 percent in the first nine months. The growth rate was 0.7 percentage point lower than that during the first six months, said NBS spokesman Sheng Laiyun in a press release.
Unlike the dual slowdown of export and investment, the country's retail sales grew 17 percent to 13.0811 trillion yuan in the first nine months from a year earlier, accounting for 47.9 percent of total GDP figure, which is 0.4 percent higher than that of first half year.
In September, the country's retail sales grew 17.7 percent from a year earlier and were up 1.35 percent from August, the NBS announced on Tuesday.
Analysts said that the nation should make renewed efforts to boost domestic demand as global economic prospects continue to dim.
Exports may contribute less to GDP growth in 2012, so domestic demand takes on greater urgency, Fan Jianping of the State Information Center said.
Liu Yuanchun, deputy head of the School of Economics of the Renmin University of China, said the government has attached great importance to expanding domestic demand, but it is not a short-term project.
"The future policies to enlarge domestic demand are expected to focus on improving residents' income and lowering taxes, including consumption tax and custom duties, but adjustment takes time," Liu noted.
Pan Xiangdong, chief economist of Yinhe Securities, pointed out that the key to expanding the domestic demand is to increase people's incomes and this will involve adjusting the distribution of national income by reforming the monopolized industry and reducing the income gap among various sectors.
Domestic consumption could be boosted next year by a recovery in car sales, said Wendy Liu, a Hong Kong-based economist with the Royal Bank of Scotland (RBS). "Car sales are predicted to grow by up to 20 percent next year, a sharp rebound from 5 percent this year," Liu said.
Stable economic policy should not ease amid uncertainties
Currently, China's economic development is faced with the complex environment at home and abroad as unstable and uncertain factors are on the rise.
The world economic condition has been undergoing complicated changes as European debt crisis spreads further while the US sovereign credit rating was downgraded. Furthermore, the international financial markets are mired in turmoil.
At home, new problems cropped up in the course of China's economic development. On the one hand, the inflation pressure continues to rise and on the other hand, small businesses are suffering from operating difficulties.
NBS spokesman Sheng Laiyun said in the face of the severe and complicated world economic situation, China has been constantly strengthening and adjusting macroeconomic control policies, following a proactive fiscal policy and prudent monetary policy. As a result, the economy has been operating soundly and moving in the right direction expected by the government's macro-control policy.
"In the next phase, China should maintain the continuity and stability of macro-control policies while giving them more foresight, relevance and flexibility," Sheng emphasized.
China has made stabilizing prices a top priority in its macro-economic controls while trying to avoid harming its economic growth by means of tightened monetary policies.
To mop up the excessive liquidity that helps fuel inflation, the central bank has raised the benchmark interest rates five times since October 2010 and increased the reserve requirements for commercial banks six times this year.
The tightening measures have adversely affected small companies as they don't have easy access to bank lending. The State Council announced a series of supportive financial and fiscal measures on Oct 12 to bail out cash-strapped small businesses and create more investment opportunities for them.
Analysts maintain that China's macro-economic policy should not ease when runaway consumer prices have not yet been fully contained, whereas, neither should the policy be further tightened when enterprises get into financing troubles.
In this dilemma, experts suggested fiscal policy should play a greater role, like reducing the taxes of small and medium-sized businesses, and at the same time some structural measures should be added to the monetary policy.
Zhang Liqun, a researcher with the Development Research Center of the State Council, expressed his opinion that given Chinese economy slowed down moderately and the consumer prices remained at a high level, so the macroeconomic control policy should keep stable and on the whole, while at the same time be prepared to guard against risks in case both domestic and international environments get worsening.
The central bank may not relax the prudent monetary policy in the short term with the inflation rate still at a high level, said Liu Ligang, director of the economic research department of ANZ Greater China.
He added that the central bank is likely to enhance financial support for capital-strapped small and medium-sized enterprises.
A report released by the Chinese Academy of Social Sciences (CASS) said the macroeconomic control should not only contain the inflation, but also keep stable and relatively fast economic growth. Top priority should be given to stability, and due consideration in macro control should be given to flexibility and prudence.
Some analysts believed that considering the fall of both economic growth and consumer prices, macroeconomic policies should not take a U turn dramatically, but the time may probably has arrived to make slight adjustments of some policies.
"Macro-policy objectives may shift slightly from fighting inflation to ensuring growth after inflation comes down as the environment for small exporters may become tougher in 2012," said Wendy Liu, a Hong Kong-based economist with the Royal Bank of Scotland (RBS).
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