By Yu Yongding
BEIJING, Oct. 26 (Xinhuanet) -- The growth of China’s gross domestic product (GDP) in the second quarter of this year slowed to 7.6% from 8.1% in the first quarter. It was the lowest since the second quarter of 2009. The newly released statistics about economic growth may eliminate the panic of a hard landing in China. However, they result in many people’s belief that China should further stimulate its economy to ensure an annual growth rate above 8%.
Since early 2010, in order to curb inflation and the property bubble, the Chinese government has adopted a tight monetary policy. The result is the inflation in June dropping to 2.2%, which was the lowest in 29 months. And the real estate price (the National Bureau of Statistics no longer publishes the official figures) also seemed to become stable and even fall, although within the minimum range.
To some extent, the deceleration shows that the policies the Chinese government has adopted to control the property bubble and re-balance the economy are working. In the first half of this year, the growth of investment in real estate development (accounting for 10% of the GDP) fell by 16.3% year on year. This led to the deceleration of investment growth in many related industries, such as the building materials, furniture and electric equipment, resulting in a 20.4% annual growth of fixed asset investment down from 25.6%.
The change in household consumption is not so clear. But many economists had evidence to show that, household consumption in the first half of this year was stronger than the official data shows.
The government must have predicted the slow-down this year in 2011. Earlier this year, Premier Wen Jiabao, in his speech to the National People’s Congress, explained why the government put the economic growth target at 7.5%. He pointed out that, the aim was to “encourage all sides to focus on accelerating transformation of the economic growth pattern and really improve the quality and efficiency of economic growth.”
In fact, in order to create enough space for the transformation of the growth pattern centered on GDP, China had set 7% as a guiding average annual growth rate for GDP in the “Twelve Five-year Plan” for 2010-2015.
China’s investment proportion is about 50% of GDP, and the investment in real estate amounts to 10% of GDP. Due to the existence of large-scale repetitions and huge waste in construction, the efficiency of investments drops quickly. In the case of the 10% annual economic growth, a 50% investment proportion means that the capital-output ratio is as high as 5, which is abnormally high in comparison with other countries.
The consumption ratio in China is 36%. If the data published by the government is relatively reliable, the ratio is too low indeed. Although huge money has been put into infrastructure construction, the public expenditure on human capital and social security are lower than the average levels in the world. More resources should be extracted from the physical capital and put into human capital.
With the sustained surpluses of the current-accounts and capital accounts in the past 20 years, China has already accumulated 3.2 trillion dollars of foreign exchange reserves. However, as a nation with huge net foreign assets, China still has an account deficit in investment income. Since 2008, the proportion of the current-account surplus in GDP has fallen significantly in China. However, China is still keeping the double surpluses, and there has been controversy over whether the fall of the proportion of the current-account surplus in GDP is a structural or cyclical issue.
Indeed, China needs to accelerate economic restructuring, even if it requires a sacrifice of economic growth. Otherwise, the cost of postponing the restructuring would be bigger.
Over the years, the government has been quietly maintaining the target of annual GDP growth with a minimum of 8%, which has been considered as the guarantee for creation of 10 million jobs every year. However, the transformation of population and its other structural changes may have changed the conditions in the labor market. So far, despite the economic growth being less than 8%, no big problems are seen emerging.
The question now is whether the government is upset at the worst performance of quarterly growth during these three years, thus launches another large economic stimulus plan, causing consequence as before.
Premier Wen Jiabao said recently that China should “insist on implementing a pro-active fiscal policy and sound monetary policy, and putting steady growth in a more important position.” In addition, in recent months, the Chinese government has already approved a number of steel and energy projects, and more may be approved in the future.
It is right for the government to respond to the changing situation in time. However, it is not enough of a reason to change the direction of policy because of the annual growth in the first half of 2012 falling to 7.8%. China should make a choice between high-speed growth and rapid restructuring. You cannot eat your cake and have it too. Faced with the current situation in economic slowdown, China is at least able to persist for some time.
See the Chinese text of the article:
http://comments.caijing.com.cn/2012-08-09/112001700.html
Translated by Chen Meina
(Source:Cssn.cn)
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