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EU, US crises taking toll on China's GDP

By Luo Lan (People's Daily Overseas Edition)

15:23, October 20, 2011

The sluggish European and U.S. economies are not only hindering global economic recovery but also affecting China's economic growth.

Sheng Laiyun, a spokesperson for China's National Bureau of Statistics, said at a press conference held by the State Council Information Office on Oct. 18 that the country's economic statistics for the third quarter, especially monthly changes in statistics, have shown the unavoidable negative effects on China's economic growth due to the European debt crisis, the downgrade of the U.S. credit rating, the turmoil in the global financial markets and the slow global economic recovery.

Export sector severely affected

Sheng noted that both China's exports and imports grew slower in September than in August. Certain countries devalued their currencies against the RMB, which increased the currency risks and costs for Chinese exporters and hindered China's export growth.

Lian Ping, chief economist at the Bank of Communications, said that China's foreign trade sector has been most severely affected by the sluggish European and U.S. economies. Due to the shrinking external demand, the county's export growth has slowed down in the past two months.

China's export growth rate stayed above 20 percent in most months in the past several years, but dropped to 17 percent in September this year. In response to the slowdown in export growth, a Chinese securities company said that based on comprehensive analysis of sluggish foreign economies, the declining PMI export order sub-index, and structural adjustments of the country's export sector, it has noted in several previous trade situation analysis reports that China's monthly export growth rate is unlikely to remain above 20 percent this year. Thanks to the central government's strategy of expanding domestic demand, the country's imports will grow faster than exports.

In addition to the export, capital movement and market fluctuation have also been affected. Lian said that capital movement is affected, and it could be seen from the recent acceleration capital outflow. A part of the outflow is for rescuing local economies and a part of it is for hedging. Lian pointed out that the current capital outflow is a good thing because it could alleviate the pressure on RMB appreciation and slow down the growth of foreign exchange reserves.

Yin Xiangshuo, vice president of the School of Economics under Fudan University, believes that in the short run, China should raise the export tax rebate again and give preferential loans to the export enterprises, and China should also stand firmly against the pressure to appreciate the RMB. In the long run, China should adjust its economic structure and expand domestic demand.

In terms of production, China should build up an environment that encourages enterprises to devote themselves to the real economy and help upgrade products. In the consumption area, China should practically increase the incomes of the common people and strengthen their consumption abilities.

Lian suggests that China should prudently balance its national policies. He believes that China should not relax in the money supply area. The GDP growth rate of the first three quarters was proper, and China needs not to stimulate or tighten it. China should not relax its inflation controls either, he said.

He said the management on the circulation links must be practical and effective and last for a long period. The supply-demand relations must be properly dealt with. Especially, the supply of agricultural products must be guaranteed. Meanwhile, Lian said China should also carry out some specific adjustments, for example, solving the small and micro enterprises' financing issue. China should strengthen emerging strategic industries as well as industries connected to agriculture, farmers and rural areas and irrigation projects, and put more loans in them.

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