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Steady Economic Growth against a Downward Trend and Flexible Micro-adjustment by Macro-control Policy


——Analysis of Economic Performance in the First Half of 2010 and Prospects for the Whole Year

DRC Task Force on Analysis of Economic Performance

In the first half of 2010, the macro-economy has made a turnaround. The economic growth turned to ease after a rapid start to 2010, the price rise remained at a reasonable level, the risk of asset bubble was reduced and the economic performance is on the whole moving toward the expected goal through macro-control. However, under the impact of the European sovereign debt crisis, the recovery of the world economy has slowed down and it is likely that domestic investment could fall by a wide margin as a result of the adjustment of the real estate market. Therefore, in the latter half of the year, the macro-control policy should be focused on enforcing steady micro-adjustments, and the orientation and flexibility of the policy should be enhanced on the basis of maintaining the successes achieved in the first half of the year in preventing the bubble economy and holding the inflation in check to alleviate contradictions and risks and to gradually realize the stable transition of the economic policy from a crisis-fighting one to a conventional one, so as to lay a sound foundation for the implementation of the 12th Five-Year Plan.

I. Economic Performance Moves toward Expected Goal through Macro-Control

Since the beginning of 2010, with a number of macro-control measures being implemented, the dynamical structure for the economic growth has been improved, the risk of asset bubble has been reduced considerably and the economic performance has on the whole presented a pattern of "high growth and low prices".

1. Dynamical structure for economic growth improved

Compared with the initial stage of combating the financial crisis, the dynamic structure for the economic growth has changed positively. A pattern of the market-driven investment, consumption and export all fueling the economic growth has taken its preliminary shape.

Nowadays the investment growth is being driven by the market instead of being mainly boosted by policies in the past. China was able to make a swift turnaround against the drastic economic downturn in the previous year and was the first to recover its economy among the world major economies. The major reason was that China benefited a lot from the package economic stimulus plan, of which the government-led investment played a critical role. Since the fourth quarter of last year, the government-led investment fell gradually and the market-driven investment has become the main driving force behind the growth. From January through May, 2009, of the fixed asset investment, the government budgetary funds increased by an accumulative total of 86.2%, while the increase only came to 10.1% during the same period of 2010. The investment in real estate development only increased by 5.8% from January through May of 2009, while such investment increase registered as high as 38.2% in 2010.

The export growth has changed from negative to positive and the absolute level has surpassed the level recorded for the same period of 2008. In the first half of the previous year, the export value all registered less than 90 billion US dollars in each month, with the growth declining by an accumulative total of more than 20%. Nevertheless, export value all exceeded 110 billion US dollars in every single month since March 2010. From January to May, the export value reached an accumulative total of 567.7 billion US dollars, up by 33.2% from a year ago, and the absolute level surpassed the level recorded for the same period of 2008.

The consumption demand increased steadily at a high level. In the course of responding to the financial crisis, positive results have been achieved as a result of the policies implemented by the Chinese government to stimulate consumption. Driven by most accepted products, such as automobiles, home electrical appliances and tourism, the consumption demand has shown a steadily growing momentum, with the actual growth hitting an all-time high.

2. Risk of asset bubble reduced

The excessively fast rise in housing prices has been contained to a certain extent. The positive effects of the macro-control measures over the real estate market unveiled by the State Council have loomed up gradually, with the excessively fast housing price rise being held in check. At present, the decrease of quantity and stabilization of prices prevail on the real estate market. It is projected that in the third quarter sales of commercial housing will see a negative growth from a year earlier and the housing prices will gradually drop as well.

The stock market is encountering a continuous downturn. Of the stock markets in major economies across the world, adjustments have been conducted most thoroughly on the stock markets in Shanghai and Shenzhen. The Shanghai composite index has dropped by an accumulative total of 27% since the beginning of the year and the Shanghai and Shenzhen 300 has dropped by an accumulative total of 29%. The evaluation level on the stock markets has remained on the whole as unbiased as that at the end of 2008 and in the beginning of 2009.

In addition, growth of money credit has been controlled to a certain extent and the credit extending goes on to an even rhythm. Moreover, with the resumption of the elasticity mechanism of exchange rates, the pressure of money input arising from funds outstanding for foreign exchange has been alleviated, which is beneficial to the control and guidance of the liquidity. The declining expectations of the economic overheating and inflation are also beneficial to some extent to containing the formation of the bubble economy.

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