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Home >> Business
UPDATED: 20:30, December 15, 2006
China's economy -- What's in store for 2007?
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Double-digit growth is a certainty for China this year, but the trade imbalance is more difficult to forecast.

Snowballing exports have combined with surging investment, but consumption has remained stagnant. A global economic downturn could hit China hard with its over reliance on trade.

Problems such as the widening urban-rural wealth gap, rising employment pressure, inadequate social security, the deteriorating environment and energy waste all relate to deep-rooted system flaws.

WTO membership gave the country's economy a shot of adrenalin. It also threw China into fiercer global competition and trade friction.

This month's Central Economic Work Conference involving the Chinese leadership drew up major strategies and policies to tackle these issues in 2007. Here is the analysis:

QUESTION 1: WHAT'S THE OBJECTIVE OF MACRO-ECONOMIC CONTROL?

CONFERENCE DOCUMENT: Realizing "good and rapid" growth, with stability as the priority to prevent drastic fluctuations, and making resolute efforts to ensure central government policies are fully implemented.

ANALYSIS: By putting "good" in front of "rapid" for the first time, the leadership underscores the quality of economic development.

The central bank contends that the fundamental principles of next year's monetary policies are to curb excessive liquidity and optimize credit structure by channeling loans to where they are most needed, small- and medium-sized enterprises and rural sectors, for instance.

Curbing excessive liquidity however is a double-edged sword as central interest rate hikes may raise loan costs for businesses, but further dampen consumption by encouraging saving.

Financial authorities says they will adopt a prudent policy to moderately reduce deficits and continue to reduce export tax rebates for environment-polluting, energy-consuming resources and raise those for products with proprietary intellectual property rights.

These policies are still vague, but macro-economic controls can be tricky as a slowdown in the world economy might stretch their effects.

QUESTION 2: HOW CAN FARMERS SHAKE OFF POVERTY?

CONFERENCE DOCUMENT: Training farmers to improve their agricultural expertise and skills, investing more in rural infrastructure, advancing rural taxation, education and administration reform and modernizing the farming sector.

ANALYSIS: More than 800 million rural Chinese have a per capita disposable annual income of only 405 U.S. dollars. Shaking off poverty has direct bearing on domestic consumption potential.

The Ministry of Finance has said the most of the rise in spending on education, sanitation, culture and family planning from 2006 to 2010 will go to rural areas. Government sources said that 100 million farmers will receive systematic training within the next five years.

The real cure for rural poverty, however, also lies in the cities, where the authorities and residents are being urged to respect the legal rights and interests of rural migrant laborers. A social security mechanism must also be set up to help farmers with healthcare and old age.

Rural areas are hungry for capital, information, technology, skills and opportunities in particular. There are no quick fixes on this issue.

QUESTION 3: HOW CAN CHINA DEFUSE THE POLITICALLY SENSITIVE TRADE SURPLUS?

CONFERENCE DOCUMENT: Expanding imports actively while maintaining a rational growth in exports and the use of foreign investment. Balancing international payments is crucial to economic stability.

ANALYSIS: With the trade surplus at a record 157 billion US dollars in November, unbalanced international payments are an outstanding problem. Some countries are already blaming their job losses on the inflow of China-made products powered by a strong production capacity. China will be held to blame if world economy stalls.

There is no easy way to bring down the surging trade imbalance. Expanding imports can be a good leverage. A contradiction here is that China has been very cautious with its foreign currency exchange rates reform. Market speculations on Renminbi appreciation have invited hot money inflows, testing the resilience of China's financial system. The debate continues on the proper time to allow the yuan greater flexibility.

QUESTION 4: HOW WILL CHINA RESTRAIN ITS APPETITE FOR ENERGY AND RESOURCES?

CONFERENCE DOCUMENT: Energy conservation and pollution reduction are the rigid rules for industrial restructuring and elimination of outdated production. Governments must be resolute in realizing this goal.

ANALYSIS: This is a tough nut to crack. Abiding by the rules means higher production costs for businesses as better production and waste disposal technology are required. Companies that shy away from this responsibility will pressure local governments, who fear loss of investment and GDP growth, to turn a blind eye.

Reducing energy consumption for every 10,000-yuan of gross domestic product by 20 percent from 2006 to 2010 will require the government to use its full arsenal of controls, from market forces to law enforcement, to deter and penalize profit-obsessed business and lax government officials.

QUESTION 5: HOW WILL CHINA CONSOLIDATE ITS SOCIAL SECURITY NETWORK?

CONFERENCE DOCUMENT: Social security guarantees involving old-age pensions, and health and industrial injury insurance must be available to all companies. Supervision of social security funds must be tightened while public medicare services and sanitation should cover both urban and rural populations.

ANALYSIS: An ambitious plan. Two trillion-yuan sounds astronomical, but for a country aging fast, the social security fund is far from enough to meet the needs of urban residents, let alone the majority rural population.

To compound the situation are corrupt government officials who siphon off public assets for illegal profits. One case in Shanghai relating to high-ranking official Chen Liangyu involved the misappropriation of three billion yuan. Social security fund scandals hurt the interests of the aged, aggravate the financial burdens of the younger generations, and most importantly, tarnish government credibility.

The government is considering legislation on social security fund management. In some provinces, independent supervision commissions have started work. Will these measures work? It is too early to tell, but the people are watching. .

Source: Xinhua


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