Turning economic frowns upside-down
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E-mail Beijing Review, May 25, 2012
Policymakers are under serious challenges on how to avoid short-term policies producing long-term negative impacts, said Zhang Monan, an associate researcher with the State Information Center. She shared her views in an article for Economic Information Daily, saying that China's economy, amid weak external and internal demand, calls for sustainable policies. Edited excerpts follow:
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Zhang Monan, an associate researcher with the State Information Center [File photo] |
With the complicated economic changes at home and abroad, "stability" is becoming a crucial concern. Premier Wen Jiabao said that stabilizing economic growth should be put on priority in China during an inspection tour to Hubei Province on May 18-20. Meanwhile, other government departments like the National Development and Reform Commission, the Ministry of Finance, the Ministry of Commerce, and the Ministry of Industry and Information Technology have been undertaking research and development to prepare policies for further economic slowdown.
Having experienced several rounds of macroeconomic control efforts since the eruption of the global financial crises in 2008, China's macroeconomic control has focused on "growth" again, and the pro-growth policy has been put on priority. That means policymakers showed some worry for the current economic growth prospects.
Economic growth is impeded by weak demand both at home and abroad. Investment and consumption declined simultaneously, along with enterprises' profits, fiscal revenue, industrial production, orders for exports, and housing prices. China witnessed in April drops of three sensitive leading indicators--electricity consumption, industrial production, and total volume of banking loans. The decreased range outstripped expectations, indicating growth-driving powers have continued to decline.
Take industrial production as an example. Industrial added value increased 9.3 percent in April, a 2.6 percentage point decrease compared with 11.9 percent in March. The data in April indicated that GDP growth rate in the second quarter may drop to around 7.5 percent. The decelerated growth has approached nearly the bottom limits of policymakers, which is a challenge for China's tolerance of the slowed economy.
Accumulated crises
Then, how to view China's current economic plight will decide the priorities of macroeconomic policies. Following the large-scale worldwide financial stimulus packages four years ago, the world economy seems to have returned to the "original point."
However, what China faced is far from periodic crises, but a massive structural crisis since the eruption of the global financial crisis. It is a debt crisis amassed over a long term by developed countries; an unbalanced crisis between countries with high savings rate and countries with high consumption; and a crisis of an old global economic growth mode. All these crises could not be resolved through contra-cyclical policies. Given the increasing exacerbation of the global economy, many big powers released strong signals again to shore up economic growth.
China is now in a "blank period" during the process of economic mode transformation. Although it is hard for it to support its economy with heavy industries, exports and investment, the new economic drivers including domestic consumption and booming industries haven't followed. In this case, "blank period" became an inevitable experience as the economic growth rate slows down.
Avoiding shortcuts
However, to resist the sharp slowdown of the economy, policies adopted will inevitably pursue short-term economic growth targets, making the economy excessively dependent on policy stimulus. The move will delay the birth of new economic drivers within the economy, which may feature the most obvious contradiction faced by China's macroeconomic control.
As a result, authorities are under serious challenges on how to make short-term policies produce long-term sustainable results and avoid short-term policies producing long-term negative impacts. Keeping a certain amount of investment is not a problem, because domestic consumption has not expanded to the range expected. But the problem is where these funds should be invested.
China has long been focused on "hard investment" in infrastructure facilities and machinery equipment, but neglect "soft investment" in research and development, technologies, and education. China should both stabilize current economic growth and raise long-term growth quality in the future, so as to ensure China's economy remains on the track of sound development.
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