China's economy not yet overheated: Interview

Professor Xiao Zhuoji, an ace economist from prestigious Beijing University on Sept. 23 addressed the first "Hubell -- innovation forum of Ph. D. students of Institutions of higher learning in Beijing" at the sponsorship of the Capital University of Business and Economics. He had an exclusive interview afterwards with reporters of People's Daily, the national leading newspaper, on the issue of "hot spots" in China's economic growth. Questions and answers in the interview are available as follows:

Whether is it able to evaluate several yardsticks objectively?

Q: China's gross domestic product (GDP) growth reached 10.9 percent in the first half year of 2006, which gives rise to a lot of talks both at home and overseas on China's economy, and some people regard it as "overheated" with an urgency to curb it. How do you look at the present macro-economy squarely?

A: Whether China's economy is overheated or not is a question that has been raised for some time. The discussion on the so-called "overheated economic growth" was prevalent in late 2003. I personally cite several major yardsticks to measure if the economic growth is normal or not: One is whether the range of economic fluctuations is appropriate and whether there are ups and downs; two is whether leading economic indexes are well matched or whether there are serious imbalances; three is whether the financial market operation is normal, and whether there are major fluctuations and an ensuing payment crisis; and four is whether the market and enterprise activities are rational, and whether there are supernormal and strained phenomena.

Taking a panoramic view of the Chinese economy in recent years, its performance has been steady but fast, various leading indexes are basically matched, financial market is proactive, market and enterprise activities are normal, macro-economic performance is sound, and there is no problem of "overheated growth".

Economic growth is relatively fast but operation normal

Q: What do you think are basic factors for your belief that China's economic growth was normal on the whole?

A: China's GDP rose by an average of 10 percent a year since 2003, 10.2 percent in 2005 and 10.9 percent in the first half of this year, so the Chinese economy is in a new-round fast growth cycle. This is the first year of China's 11th Five-Year Program (2006-2010) and economic performance is normal, various indexes are well matched and there are no serious imbalances, despite a relatively rapid economic growth.

First: There are exuberant investment, consumption and export demands along with a fast-speed economic growth. Demand is a leading factor for spurring economic growth. With conditions for increased demands, fast economic growth cannot only satisfy the market needs but expand job opportunities, raise the income of residents, increase tax revenue for the state, and so it has a positive role to play in numerous spheres.

Secondly: Enterprise economic returns have increased by a fairly big margin, due to stable consumption prices. The consumption price went up an average of 1.3 percent in the first half year, there are ample supplies of various consumption commodities, the economic efficiency of enterprises was good and the sizable industrial enterprises increased their profits 25.5 percent year-on-year from January to May and, during the same five-month period, the state-owned enterprises under the central leadership increased their profits by 16 percent over the same period of 2005.

Thirdly: There is an abundant supply of investment products, and coal, electricity and oil and in transportation sector, which were "bottleneck restrained", have been eased to a great extent,. In the first six months, there was a big rise in the supply of coal and electric power, and five major national power-generating enterprises chalked up 12.5 percent of the national energy generation; the natural gas output rose 26.7 percent, and there are also increases in the output of refined oil and rolled steel, cargo delivery capacity and transportation volume. With an ample supply of investment products, there is increased production capacity, and essential material conditions are created for the fast-speed economic growth.

Fourthly: Financial regulations are appropriate and overall performance stable. Since early this year, the central bank, by taking a series of stringent measures, including raising interest rates and the reserve ratio of commercial banks and opening up market operation business, have tightened control on liquidity and credit, optimize the loan mix, and attained remarkable achievements.

Fifthly: China's financial strength has increased along with a 22 percent growth in state revenue. The state revenue reached 3,600 billion yuan in 2005, up 20 percent year-on-year, and increases were again reported in the first half of 2006, and it is expected to exceed the 4,000 billion yuan mark for the whole year. With a greater financial power, China can allocate more funds to aid disadvantageous social groups, reduce the income gap to some extent and stabilize the social economy. The opening performance of the 11th Five-Year program was sound and benign, and the performance is normal.

Fast-speed growth inevitable

Q: What do you think is the main reason for a fairly high economic growth margin? Is it accidental or inevitable, or a short-term, or long-term one?

A: Economic growth ranges cannot be the same year by year but with certain rises and falls, but China's fast economic growth is an inevitable and long-term one, as there is the existence of objective factors to spur the economic growth. These factors are mainly as follows: 1.There are ample-supplied investment products. Great advances have been made in the supply of raw materials, fuel energy, transportation facilities and ports, the rolled steel output has reached 350 million tons a year and transportation and communication capacities have great increased and provided crucial materials conditions for the fast economic growth. 2. There is an abundant supply of capital. With the growth of economy and finance and diversified sources of funds, China has relatively plentiful capital supplies. Residents in China had bank savings of up to 1.5 trillion yuan in 2005, greatly changing the country's financial conditions. 3. With a shift in consumption structure, new "hot spots" in consumption are taking shape, with a rapid rise in the purchased amount of housing, sedan cars, telecommunications, tourism, leisure and health care, providing a powerful impetus for economic growth. 4. Double digit economic growth rate in Shanghai, and Jiangsu and Guangdong provinces has sustained for years. Development in east China costal region has not only increased the whole nation's economic growth volume and speed, but offered a fine exemplary role for other regions to follow. 5. Economic globalization has provided vital external conditions for China's economic development. Since its entry into the World Trade Organization (WTO) in late 2001, China has attained a high speed growth in its import and export trade with its total trade value amounting to 1.4223 trillion US dollars in 2005 and expected likely to reach 1.6 trillion dollars in 2006. The expansion of import and export trade has enabled China to tap external resources and overseas markets better still. Hence, there are good domestic and external conditions for the fast-tempo economic growth.

Six major issues deserve high attention

Q: What do you think are the major issues that merit attention in China's rapid economic growth?

A. Of the numerous problems existing in China's current fast economic development, there are superficial ones and also deep-rooted ones, there are temporary ones and also long-term ones, there are ones in supply and also ones in demand, there are market-related ones, and also policy-related ones, and there are ones economically and also ones socially. Viewing from the present economic aspect, a couple of leading issues deserve our high attention: 1.Over-consumption of energy and raw materials owing partly to a slow progress in the restructuring of industrial structure has seriously restricted the sustained growth of economy; 2. fixed assets investment rises by a big range for the blind expansion of some industrial items with high energy consumption, high pollutions and excessive energy output; 3. trade surplus shots up by a big margin due to imbalanced import and export trade, with its surplus possibly reaching 130 billion dollars in 2006, a rise of 30 percent year on year, foreign exchange reserve has hefted with a marked rise in the per-capital share of foreign currency. 4. The actual number of the jobless people somewhat increased regardless of occupations. 5. Social faith and honesty impaired and market activities are not regulated and; 6.income distribution is not fair enough and the gap between rich and poor widens, and there are some great hidden risks in social stability. These problems have to be resolved step by step in the future economic development.

By People's Daily Online

People's Daily Online ---