China puts brake on economic bullet train

08:21, April 19, 2011      

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Just as China lowered the speed of the Beijing-Shanghai high-speed train to ensure safety and affordability, the country is now trying to slow down its torrid economic expansion to ensure sustainability in the coming years.

The government's efforts can be seen in economic data from the first quarter of 2011, or the start of China's Twelfth Five-Year Plan. Its economy expanded 9.7 percent in the first quarter, tapering off slightly from the 9.8 percent growth posted in the fourth quarter of last year.

Sheng Laiyun, a spokesman from the National Bureau of Statistics, called the performance a sign of "steady growth" and "a good beginning."

Other government economists say the 9.7% year-on-year growth would give the policymakers much leeway, as well as confidence, to combat inflation by reducing credit supply to the economy, without worrying too much about a "hard-landing".

Consumer spending contributed 5.9 percentage points to the country's GDP in the first quarter, exceeding the 4.3 percentage points contributed by investment. This makes consumer spending the biggest driver of the world's second largest economy.

China also saw a trade deficit of $1.02 billion from January to March this year, the first quarterly trade deficit in six years.

Nevertheless, the country's foreign currency reserve shot up by more than US$200 billion in the first quarter to hit a landmark of US$3 trillion, meaning a rising current of overseas money inflows being attracted to China. That trunk of huge money, if better utilized by China, could provide continued firewood to fuel the country's economy in the coming decade, Chinese economists say.

Furthermore, private investment rose 31.5 percent year-on-year in the first quarter, 6.5 percentage points higher than the overall investment growth rate, the NBS reported.
Analysts said this data indicates that China's domestic consumption is picking up speed. Stimulating domestic consumption is just one of the tasks outlined in the government's five-year economic blueprint.

Economic data from the first quarter points to steady and balanced growth, which is in line with the government's goal of transforming the country's development mode, the Xinhua News Agency quoted Zuo Xiaolei, chief economist at China Galaxy Securities, as saying, yesterday.

After relying on exports and government investments to fuel economic growth for three decades, China is taking steps to restructure its economy by emphasizing a domestically-driven, consumption-based system. This model promises more sustainable development.

The biggest challenge China faces in the next five years is balancing investment and consumption, said Paul Sheard, global chief economist of Nomura Securities.

China's 12th Five-Year Plan, adopted in March, provides a rough road map for the country to follow. It outlines a series of policies and priorities which will support the evolution of China's economy over the next five years and beyond. The plan calls for lowering economic growth to 7 percent annually in exchange for greater sustainability and an improved quality of life for China's citizens.

President Hu Jintao said in a speech on April 15 at the Boao Forum for Asia, a non-governmental economic forum, that population, resources and the environment have put great pressure on China's economic and social development, and that there is lack of balance, coordination and sustainability in China's current development mode.

The President said China will boost domestic demand over the next five years and put an effective mechanism in place to unleash consumption potential. Furthermore, the country will boost imports as part of its efforts to restructure its economy, he said
"We will ensure that consumption, investment and export contribute to economic growth in a coordinated way," Hu said.

The key to stimulating domestic demand is to increase household income, which will promote consumption and encourage sustainable economic growth, said Xu Fengliang, senior researcher with the Chinese Academy of Social Sciences, a government think tank.

The new five-year plan aims to spread more wealth among China's 1.3 billion people, as a way of fostering domestic growth and creating a new driver for future economic expansion, said Chi Fulin, executive director of the China Institute for Reform and Development.

Since last year, 30 provinces and regions have raised minimum wages. In addition, China is likely to raise its threshold for individual income tax to between 2,500 and 3,000 yuan per month from the current 2,000 yuan, the China Business News reported, citing a source close to China's tax regulating body. The government may also cut the number of income tax brackets from nine down to five, according to the report.

People's Daily Online / Xinhua
 
 
     
 
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(Editor:梁军)

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