Commentary: China's Economy not Overheated

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Last updated at: (Beijing Time) Saturday, August 09, 2003

Commentary: China's Economy not Overheated

China's economy is still on the right track despite worries about "overheated'' growth, said an article in China Economic Times.

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China's economy is still on the right track despite worries about "overheated'' growth, said an article in China Economic Times.

China's gross domestic product (GDP) increased 8.2 per cent year-on-year in the first half of this year, overcoming the shadow of SARS which plagued the economy in the spring.

While it is generally believed the economy is entering a new boom period, some doubt the high growth rate is normal.

The worries are mainly about the surging monetary supply and investment in real estate development, which could yield bubbles and inflation.

Fixed-asset investment in the first half of this year soared 31.1 per cent year-on-year. The balance of bank loans increased 22.9 per cent, the highest growth rate since 1996.

Growth in these areas is basically in line with the demand, and there are no signs showing the economy has been "overheated,'' said the article.

The article attributed the current boom to the government's sound macro-economic policies and restructuring efforts, which led to the maturity of some "propellant'' industries such as real estate, information technology and car manufacturing.

Although SARS has curbed employment and farmers' income growth, its impact on the overall economy is limited.

It is unnecessary to be nervous about the hard-won triumph of the economy, said the article.

China's economy has long been haunted by a deflation tendency since the 1997 Asian financial crisis.

Thanks to the government's line of tapping domestic potential, featuring a pro-active fiscal policy and a stable monetary policy, the GDP growth was maintained at 7 to 8 per cent on average each year.

The economic restructuring has borne fruit and the economy is about to see a new phase of rapid growth, said the article.

However, attention should be paid to over-investment in some places and industries, the article warned.

After the re-election of local legislative and government organs earlier this year, many new officials have taken office, ambitious to leave their mark on local economies.

In a bid to court outside investment, some local governments have planned land developments for so-called high-tech zones or industrial parks.

The zeal of local officials for new zones may result in overlapping projects, as many places are doing the same thing. Should these new zones fail to attract enough investors, the land and money used for preliminary development, including bank loans, will be wasted, the article said.

The growth of the steel industry also needs to be closely watched, said the article.

Investment in the industry rocketed by 153.7 per cent year-on-year in the first quarter of this year. But the newly opened steel plants are mostly small-sized and produce medium- and low-end products.

The fever in steel and other industries, as well as the construction of new high-tech zones, contributed to a 20.8 per cent surge of the monetary supply in the first half this year.

However, the current boom is not likely to trigger inflation in the near term, the article said, on the grounds that consumption has yet to improve.

Private consumption dropped 0.6 per cent in the first half of this year, despite robust growth in fixed-asset investment.

The consumer price index recovers slower than the price of industrial elements.Locked in worldwide deflation, there is not much room for the rise of domestic prices.

The current economic situation cannot be rashly portrayed as "overheated'' and any adjustment of investment and monetary policies should be moderate and consistent, the article said.

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