Adapt to 'Post-shortage' Economy

After more than 20 years' of market-oriented economic reform, sustained economic growth and continuous economic restructuring have ushered in noticeable changes in China's economy. The country has moved out of an era of perpetual shortages and into a "post-shortage era," an article in China Economic Times said.

Economists point to 1997 as the year when the crux of this change took place, but its roots can be traced back to early 1996, when the economy successfully realized the so-called "soft-landing."

In the first half of 1996, supervision over 609 major commodities indicated that supply of and demand for 89.4 per cent of commodities remained balanced, while 5.3 per cent of commodities were oversupplied and 3 per cent under-supplied. Decision-makers became wary of a looming economic slump and took bolder macroeconomic adjustment measures, including the lowering of interest rate, which they did six times in 31 months from May 1996.

Unfortunately, these measures largely failed to produce the desired results. As investigation later showed, in June 1998, all the 601 major commodities surveyed were either balanced in terms of supply and demand or oversupplied.

In response to this, the State adopted a pro-active fiscal policy aimed at expanding domestic demand and stimulating economic growth. Fiscal expenditure and treasury bond issue were both increased. As a result, after last August, some macroeconomic indexes began to show signs of improvement.

Another perspective on the motivations behind the "post-shortage" label is afforded by looking at the process of marketization that has transformed the country's economy, the article said.

In 1978, the prices of 94.4 per cent of China's agricultural products 97.5 per cent of the industrial products and 100 per cent of products for service purposes were set by the State. The marketization level of production means was zero, and the idea of marketization was yet to wiggle its way into the restrained minds of enterprise directors and government leaders.

After the introduction of the reform and opening up policy in 1978, the "shortage economy" continued to reign.

The economy passed through a series of stages before a target for the establishment of a market-oriented economic system was set. While the degree of marketization grew , commodity shortages, a long-standing phenomenon associated with structural problems in the country, began gradually to disappear.

It is estimated that the overall degree of marketization for the national economy reached 50 per cent in 1997, the article said. Investigations into relevant indexes from that year indicated that the marketization degree of all commodities nationwide was 61.71. The idea of adaptation to a market economy had penetrated far into government organs and enterprises.

One phenomenon that stood out in this process was the fact that the degree of marketization of products exceeded that of production means. In other words, when a country is ironing out a unified and standard market mechanism in a "post-shortage era," consumer goods will first face a buyers' market while the trade and supply of means of production confronts insufficient market feedbacks and low efficiency, said the article.

The fact that the influence of the old economic structure on current economic performance has gradually diminished also signals the economy has entered a new stage, demanding a new structure to drive its wheel.

In 1997, China's manufacturing sector suffered serious relative surpluses and pending deflation. Traditionally, relaxed control on fixed assets investments by the central government would arouse local governments' enthusiasm for approving more projects. However, this time the traditional perception failed to do the trick. The government took up a series of measures to stimulate the economy but investors were not confident and banks were overcautious about lending.

In the first four months of 1998, newly increased loans in various domestic financial organs amounted to 113.8 billion yuan (US$13.7 billion), 72.2 billion yuan (US$8.7 billion) lower than the same period of the year before. After the interest rate was lowered for the fifth time in July that year, individual bank saving continued to rise and struck a 17.2 per cent month-on-month growth. State investments under-performed in a serious way and investments from collective and private sectors registered negative growth rates. The national economy was stuck in the mire of deflation.

The above analysis suggests that, after the more than 20 years' reform, the market mechanism has begun to occupy a dominant position in the economy, the article said. It suggests the economy has entered a new stage in which it needs the government, as the guide and accelerator of the reform, to make timely macro adjustments.

Seen in light of these explanations, the meaning of the term " post-shortage era" becomes more clear.

According to the article, "post-shortage era" refers to an unavoidable stage in the process of economic reform which features balanced supply and demand or even long-term oversupply.

There are five major characteristics in the first 5-10 years of China's "the post-shortage era," the article said.

First, the country remains a low-income country with per capita consumption level or per capita resource consumption level far below the world average.

Second, sluggish demand in this era includes insufficient demand from the large rural population, low-income people and those in abject poverty. Polarization of income results in problems from two social stratums: The rich do not spend while the poor have no money to spend. According to the article, at present, about 500 million rural population live in poverty, and around 140 million urban people are badly off.

Third, structural problems resulting from institutional impediments and a lack of efficiency are prominent . For example, delayed enterprise reform has made State enterprises unable to catch up with market demand and have caused them to fall into economic difficulties.

Fourth, as reform enters a stage which destabilizes social, as well as economic, structure , people feel generally more unsafe and become less concerned with consumption.

Fifth, unbalanced supply and demand, excessive production capacity and growing stockpiles will force market expansion and the heightening of enterprise efficiency and product quality. [Source: chinadaily.com.cn]

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