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Pronounced Recovery and Heightened Inflation Expectations: Enhancing the Sustainability and Flexibility of Policies


Task Force on Analysis of China's Economy in the First Half of 2009 and Prospects for Economic Performance in the Latter Half of the Year

The package economic stimulus program formulated by the CPC Central Committee and the State Council has achieved remarkable success in stabilizing the economic performance and bringing about a pronounced economic recovery. The foundation for the recovery, however, has not been solid and more attention should be given to such problems as the rise of asset prices and the heightened inflation expectations. To ensure a stable economic recovery and a steady and rapid economic growth in the mid-and-long run, we need to enhance the sustainability and flexibility of policies and set aside some room for necessary adjustment.

I. The Recovery Has Become Obvious with Increased Positive Factors

With the package economic stimulus program of the CPC Central Committee and the State Council taking effect gradually, remarkable success has been made in expanding domestic demand and maintaining the growth. The economic recovery has become obvious on the whole with increased positive factors after the economic performance remained basically stable during the first quarter.

1. Intensified government efforts and consolidated policy implementation

Since November 2008, in accordance with the requirement that we act fast, be forceful, take targeted measures and stress implementation, the government has put a lot of efforts into work and carried out the policies to the letter. A large proportion of financial investment funds have been put to right use. In 2009, the Central Government has arranged an investment of 908 billion yuan, up by 487.5 billion yuan. Up to now, more than half of the investment funds have been put into operation in an orderly way. During the first quarter, the rate of disbursement of the funds in full exceeded 64% and the rate of disbursement of the investment funds budgeted by the Central Government reached 94%. Increase of investment in bringing support and benefit to farmers and in improving people's livelihood and a series of moves aimed at promoting employment and revitalizing the industries have created necessary conditions for the economic recovery and social stability. The money supply grew rapidly. From January to May, the broad money supply grew by 25%, being nearly 8 percentage points higher than that in the same period of the previous year. During the first half of 2009, the newly increased loans exceeded an accumulative total of 7 trillion yuan. The organic coordination between fiscal and monetary policies has timely and effectively expanded China's domestic demand and alleviated the shortage of demand resulting from the drastic reduction of external demand.

2. Accelerated growth of consumption demand

Generally speaking, the global economic crisis and economic regulation will affect the employment and income expectations of the residents and will then slow down the growth of consumption to a certain extent. Nonetheless, since the beginning of this year, the actual growth of urban and rural household consumption has reached a high level. During the first quarter, the actual consumption expenditure of urban and rural residents increased by 9.6% and 10% respectively, being higher than that in 2008. From January to May, the total retail sales of social consumer goods rose by 15% and were about 2 percentage points higher than those in the same period of 2007 and 2008 after allowing for price rises. It shows that when the savings ratio is high, the change of the short-term income will have less influence on household consumption and that so long as the policy is properly adjusted, there will be much potential and room for the increase of household consumption.

3. The rising social investment

Effectively stepping up the growth of social investment is a desirable objective to be achieved by the government through increase of investment as well as an important foundation for the continuous rise of the economy. From January to May, not only did the investment made by the state and state-holding enterprises grow fast, but the investment made by other enterprises, including collectively-owned, self-employed and privately-operated enterprises, grew by 33.6%. The hallmark fact is that sales of real estate and automobiles, two major leading industries, have grown at an accelerated pace, coupled with an increase of investment. From January to May, the area of commercial housing sold nationwide increased by 25.5%, year on year, being 16.5% higher than the highest sales volume during the same period of 2007. Sales of real estate held in reserve accelerated and the growth of investment speeded up month by month from 1% during January and February to 12% in May. During the same period, the number of manufactured and sold automobiles reached 4.84 million and 4.96 million, respectively, up 11% and 14%, year on year. Of the total, the number of manufactured and sold automobiles grew by 29% and 24% respectively in May.

4. Stable and growing world market share for China's export commodities

From January to May, China's export volume declined by a big margin. However, after allowing for price rises, the physical quantity reduced by a relatively narrow margin. From January to April, the import and export cargo handling capacity of China's coastal seaports above the designated size dwindled by 4.6%, year on year. In the context of the drastic reduction of the global trade volume, the market share occupied by China's export commodities in major countries and regions has mounted up instead of dwindling. During January and April, the proportion of China's exports to the United States made up 18.4% of the U.S. total imports, increasing by 2.3 percentage points over the previous year, and the proportion of China's exports to Japan constituted 24.4% of all Japan's imports, up 5.6 percentage points. During the first quarter, the proportion of China's export commodities on EU market constituted 17.9%, up 1.9 percentage points. The increase of market share suggests that China's export commodities are competitive.

Under the stimulus of all above-mentioned factors, the momentum of the Chinese economy remaining stable and beginning to grow has initially taken shape. It is estimated that during the second quarter GDP growth will be about 2 percentage points higher than that in the first quarter and the accumulative growth rate will be slightly higher than 7% in the first half of the year.

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