Hu Shaowei

 

Figures released by the National Bureau of Statistics indicate that the Chinese economy continued to grow in a smooth and steady way in the first three quarters of 2006, and that the accelerated increases in GDP, fixed-assets investment and loans, which drew wide concern, were slowing down.

 

Consequently, some economists urged the country's policy on macroeconomic coordination and regulation be altered somewhat to maintain the momentum of economic growth.

 

This author, however, believes that the time has not yet come to re-orientate the current macroeconomic regulating policy, although it has achieved some significant effects.

 

Three factors support this theory.

 

First, the possibility for the economy to slide by large margins borders on zero.

 

The vast Chinese economy is subject to great employment pressure and the problems and risks cropping up in the course of economic development can only be resolved through continuous development. So, it is generally accepted that the growth rate of the Chinese economy should not be lower than 8 percent. Otherwise, the economy could derail.

 

In actuality, the economic growth rate looks unlikely to drop sharply. This is largely attributed to consumer demand, which is showing signs of expanding. Statistics indicate that the per capita disposable income of urban residents in the first three quarters stood at 8,799 yuan (US$1,124), growing 10 percent year-on-year. In the same period, the per head disposable income of rural residents was 2,762 yuan (US$353), an 11.4 percent increase over the corresponding period of last year. All this paves the way for steadily increasing consumer goods sales in the domestic market.

 

Although the growth in fixed-assets investment has started to drop as a result of macroeconomic coordination, construction of key infrastructure such as important railways must continue.

 

The large-scale construction projects are backed by capital sufficiency. In the first eight months of this year, for example, the profits reaped by sizeable enterprises across the country totalled 1.13 trillion yuan (US$141.6 billion), a 29.1 percent growth year-on-year. This means that the country's investment capability has increased, instead of being weakened.

 

In view of this, the chance for the growth rate of fixed-assets investment to drop out of the reasonable range is very slim.

 

In addition, the country is likely to keep a continuous favorable trade balance in the future, considering various external and internal factors. This is expected to help power the country's economic growth. So worries that the economy could make a downward turn are largely unfounded.

 

Second, the excessive monetary volatility has not been basically redressed, which means that the success of macroeconomic coordination is still on shaky foundations.

 

It has been noted that combinations of measures are worked out in the current round of macroeconomic coordination. In April, for example, the banks' benchmark interest rate was revised upward. Hot on the heels of this, the banks' reserve fund rate and the interest rate of the deposits went up in July and August respectively.

 

Packages of regulating policies have also been formulated to cover other areas such as the environment, energy saving, land use and real estate.

 

It should be said that the effects achieved by this round of macroeconomic coordination are largely attributable to the simultaneous application of economic, legal and government command means.

 

So, macroeconomic coordination in the typical sense monetary policy has not played an outstanding role in the current macroeconomic coordination.

 

Statistics show that outstanding M2, the broadest measurement of money supply, was 33.19 trillion yuan (US$4.14 trillion) by the end of September, the growth of which was 1.11 percentage points lower than the previous month and 1.09 percentage points lower year-on-year, signifying a clear drop in the money supply.

 

The pace at which bank loans are made is also slowing down. By the end of September, for instance, the monetary institutions' total balance in renminbi stood at 2.21 trillion yuan (US$276 billion), the growth of which was 0.9 of a percentage point lower than the previous month, indicating that the increase was decelerating.

 

At the same time, the country's foreign exchange reserves keep rising. By the end of September, for instance, the balance of foreign exchange reserves was US$987.9 billion, a 28.46 percent increase year-on-year.

 

The figures demonstrate that the problem of excessive monetary volatility has not yet been settled. This is likely to help trigger a rebound of bank loans in case the conditions are ripe.

 

Once the commercial banks rush to lift the gate on loan extensions, credit grants will pick up speed. As a result, it would be hard to implement the central bank's moderately tight monetary policy and, in turn, it would be more difficult to bring the fixed-assets investment back to the reasonable bracket.

 

Third, structural problems in the Chinese economy are still asserting themselves.

 

The mere analysis of the overall economic quantities can hardly explain various kinds of macroeconomic phenomena in the current Chinese economy. This means that the country is not only confronted with disequilibrium in overall economic quantities but in the economic structure as well. The irrational and twisted structure is increasingly impeding the quality of economic growth and also hampering the Chinese economy's competitiveness.

 

Consequently, restructuring and optimizing the economic structure tops the agenda of China's economic strategy. The macroeconomic coordination policy, therefore, is and should not be confined to dealing with overall economic quantities. Overall quantity policies and structural realignment policies should, therefore, be incorporated into a package. In other words, policies addressing structural problems take on the nature of macroeconomic coordination in the particular situations in China.

 

In the context that structural problems remain acute, macroeconomic coordination policies that lean towards addressing structural maladies are expected to play a bigger role, such as the policies encouraging energy saving and curbing pollution.

 

All told, the following conclusion can be drawn: The time for re-orientating the current macroeconomic coordination policy has not yet come and regulation should continue.

 

(China Daily December 7, 2006)