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Economy's Future Good, But Not Perfect
Thanks to a favourable international economic climate in 2000, China has shaken off the sluggishness that had been restricting growth since 1998 and can now look forward to a smooth-running economy in 2001, an article in Outlook Weekly said.
Exports surged in the year 2000 and reform of the supply system has soothed pressures caused by excessive production.
Enterprises in general recovered, with increases in sales and profits. Some State-owned conglomerates and private businesses have demonstrated strong momentum that will likely carry them onto further development.
Although economic headway in 2000 seems to have ushered in a period of stable economic growth, the country still has a long way to go before it completes the tremendous economic restructuring it has been pursuing for the past few years, the article said.
Despite some positive changes in prices, the imbalance between supply and demand did not change substantially.
Statistics show that the surge in international oil prices last year attributed to about half of the increased cost of raw materials, and hence led to the appreciation of industrial products.
The domestic consumption index also rebounded because of a rise in service charges. And seasonal fluctuations have prevented retail prices from continuous decline.
Meanwhile, domestic demand was still short of supply. And surplus products are not likely to find buyers in the short-term as enterprises grapple with dud assets and workers get laid off.
The economic upgrade process, confined by the current economic system, will not add much vigour to the economy in the near future. Nor will the country's urbanization process give notable impetus to economic growth in the short run.
The deepening of economic reform will involve changes in some sensitive areas, including the ownership of enterprises and the distribution system. Alterations in these realms will have profound effects on the lives of many people.
The pursuit of continued reform will be a painstaking task and the economy will undergo some harrowing changes in the future, the article said.
The recovery last year of many enterprises was the result of outside factors, including the swelling oil price and cuts in interest rates, rather than a consequence of mature management and product quality upgrading.
As a result, a number of enterprises are weak in innovation and lack an incentive mechanism which is necessary in market competition.
Apart from changes at home, the Chinese economy is now linked more closely with the global economy.
After the 1997 Asian financial crisis, the growth rate of China's foreign trade plunged to 0.55 per cent in 1998 from 21 per cent in 1997. Economic growth since the crisis has slowed considerably.
The cozy international climate in 2000 contributed a lot to the country's boom. The increase in international demand has greatly stimulated China's exports.
In addition to the international market, macroeconomic policy will have more influence on China's economic growth, because the economy is not mature enough to grow on its own accord and still needs to rely on the instruction and direction of government policies.
With economic restructuring continuing in the future, the economic growth rate will remain moderate and prices will stay low due to excessive production.
Radical changes in the global economic environment and domestic economic policy are unlikely to occur in 2001, and the national economy is expected to remain stable throughout the year, but the growth rate will be slightly lower than 2000, the article predicted.
Direct government investment will remain high due to the high number of infrastructure projects that are under construction. The government will play a leading role in the country's investment and will stick with its pro-active fiscal policy in 2001.
Private investment will probably grow faster as the economic power of private investors becomes stronger.
Inspired by the economic recovery, foreign businesspeople are also likely to be more enthusiastic about investing in China.
Last year, per capita income in China's urban areas increased rapidly, which meant good things for the housing and credit sectors. Consumer demand is expected to grow 9 per cent in 2001.
The growth rate of exports will drop to 10 per cent or so, due to the enlarged base of trade volume and tightened administration on export tax rebates.
In summary, the article said, growth in domestic demand will dip moderately in 2001, while the growth in foreign trade demand will drop significantly.
With the experience of the past couple of years under its belt, the government has become more skilled in manipulating economic policy. The pro-active fiscal policy and the stable monetary policy will both help promote industrial upgrades and will work to sharpen the competitive edge of enterprises.
But serious difficulties still lurk ahead.
The sluggishness in export growth will negatively impact a number of export-dependent sectors including the textile, clothing and household electric appliances industries.
The already large amounts of idle commercial property will increase, putting even more pressure on the real estate industry to develop. And continued high oil prices will raise operating costs for many enterprises, cutting into their profits.
Source: China Daily
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