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State Council: China Able to Sustain High Growth Rates
China will be able to sustain rapid economic growth for fairly long period, says a recent report by the Development Research Centre under the State Council.
After 15 years of tremendous expansion since 1978, China began to witness a slight decline in economic growth beginning in 1993, and becoming especially noticeable during the current Five-Year Plan period (1996-2000), according to chinadaily.com.cn.
Many have taken this trend as a sign that the era of rapid growth is over. But the majority of others believe China's economy will maintain a relatively high growth rate in the next decade.
In 1992, China's gross domestic product (GDP) grew at a rate of 14.2 per cent. Three years later, the GDP growth rate slipped to 10.5 per cent. It was down to 7.1 per cent in 1999.
According to the Development Research Centre, unavoidable intrinsic economic factors are responsible for the current decline.
The main propeller for China's past economic growth -- a shortage of goods, has been disappearing and is being replaced by an actually surplus of goods, thanks to the country's excessive industrial production capacity.
This situation emerged as early as the Eighth Five-Year Plan (1991-95) period and became especially evident in the Ninth Five-Year Plan period (1996-2000).
The once-hungry domestic market started to see this over-supply of goods for the first time in the early 1990s, and since then the problem has increased.
Also adding to the slowdown of economic growth is the fact that the recent development of a thriving information industry have led to a decreased demand for the products of traditional industries.
The report claims, however, that China's high economic growth will continue despite the negative impact exerted by excessive supply and weak demand.
According to the report, the economy will continue to grow for several reasons.
First, resident bank deposits will continue grow. China's total individual deposit volume increased from 40 billion yuan (US$4.8 billion) in 1980 to 5,340.7 billion yuan (US$643.5 billion) in 1998. Although the growing elderly population is more likely to reduce than contribute to these numbers, the overall trend will be towards increased savings in the long run.
China's economic growth will also maintain momentum through increased injections of foreign capital. China's stable political situation and vast market are, and will continue to be, a major lure to foreign investors.
Moreover, the development and implementation of standardized and transparent policies in advance of China's entry into World Trade Organization (WTO) will further strengthen overseas investment confidence.
A third factor that will help maintain economic growth is the labour force. Thanks to education efforts and urbanization trends, the pool of workers is expected to be more well-trained and effective in the coming years. Estimates also claim the labour force will grow at a rate of 1.2 per cent each year in the next decade China's leaders recognize the crucial role science and technology will play in the development of a new economy and so have developed a comprehensive strategy designed to nurture and promote their development.
This strategy consists of two plans. The first is to lure, through a number of economic incentives, the large population of talented Chinese researchers currently working overseas back to China. And the second plan is to promote the practical and market-oriented application of scientific and technological discoveries.
Sagging demand will be remedied through government infrastructure construction efforts. A hefty amount of funds will have to be invested in the building of railways, highways and telecommunication networks, all of which are currently insufficient to meet the country's needs.
Urbanization in its rural areas will also be promoted in order to expand domestic demand.
Although agriculture has progressed impressively in recent years, farmers' incomes are still relatively low, which means they are unable to participate fully as consumers.
Statistics indicate that the growth rate of farmers' per-capita income has dropped from 9 per cent in 1996 to 4 per cent in 1998. The income gap between farmers and urban residents is widening.
If urbanization progresses in China's rural areas, economic growth will be boosted by huge rural demand for electrical household appliances.
A number of economists have expressed a belief that the current decline in economic growth has been caused by ongoing structural adjustment and the inherent risks that adjustment carries with it.
According to these economists, taking effective measures to prevent possible risks is a precondition to realizing continued economic growth.
They recommend, first, that various policy restrictions posed on non-public investment be eliminated.
They claim State banking sectors should be more open to non-State small and medium-sized firms because their success is crucial to promote the country's economic efficiency and reduce unemployment.
At the same time, they say, China should gradually reduce its dependency on government financial policy to ward off possible financial crises.
Finally, State monopolies in non-competitive sectors must be broken up, they claim.
China's impending accession to the WTO marks a crucial step towards global economic integration,But before the massive opening to the outside world, China must first open such industries to the domestic non-State sectors.
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