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Centering on Price Control for Smooth Economic Growth and Improvement of Economic Benefit


— An analysis of economic situation during the first quarter of 2011 and prospects for the whole year

DRC Task Force on Analysis of Economic Performance

Since the beginning of 2011, an imbalance has been seen in the course of the global economic recovery. Different countries are confronted with different problems and conspicuous contradictions. The economic policies condition and interact on each other. In addition, affected by the natural disasters and the turbulent geopolitics, the economic situation tends to be all the more complicated. Nevertheless, the economic upturn as a whole has not been reversed. In view of China's economic performance, a huge pressure has remained on commodity price rise and the declining export and consumption growth has brought pressure on the downturn economic performance. The macroeconomic policies should be aimed at taking price control as the central task and giving due consideration to the stabilization of the growth. We should adopt a correct attitude toward the appropriate downturn of the economic growth, put forth effort to advance the institutional reform and adjustment of the economic structure and improve the quality and benefit of the Chinese economy against the backdrop of relatively slow economic growth, so as to make a good start for the first year of the 12th Five-Year Plan.

I. Smooth Economic Operation and a Huge Pressure of Inflation

Since the beginning of 2011, the world economy has maintained a momentum of recovery. The direct impact of the earthquakes in Japan is limited, yet their indirect-effects are worth close attention. Despite the downturn of China's export and consumption growth, they remain at a reasonable and normal level. The crest value and the inflection point for price rise have yet not turned up and the pressure of inflation still exists.

1. An Imbalance in the continuous recovery of the world economy

Since 2011, the world economy has maintained a momentum of recovery. The PMI for the global manufacturing industries has presented a powerful upward trend, reaching 57.9 in February and hitting the highest record since 2005. The leading indicator for countries of the Organization for Economic Co-operation and Development (OECD) has risen to 103.1, suggesting that the developed economies have all undergone an economic upturn. Of those economies, the US economy has not only grown fast, but its unemployment rate went down to 8.9% in February, thus alleviating the situation of "jobless growth" to a certain extent. Driven by the German economic growth, the economic growth of the European Union has remained stable on the whole.

The imbalance in the course of the global economic recovery is manifested by the imbalance between developed countries and the developing countries and the imbalance within developed countries. The economic growth of the developing countries has in the main restored to the level before the crisis. The main challenges in existence are inflation and the asset bubble risks and that the economic recovery of developed countries is relatively slow and their policies are still being focused on restoration of the growth. Among the developed countries, a robust economic growth has taken place in the United States and Germany, while that of Japan, Britain and Italy has appeared relatively sluggish. The United States is under a slim pressure of inflation, yet CPI in Eurozone rose by 2.4% in February and that of Britain has overshot 5%. The unbalanced recovery of the global economy has made it difficult to enforce coordination with macroeconomic policies.

2. Indirect effects of the Japanese earthquakes merit attention

Affected by the appreciation of the Japanese Yen and the withdrawal of the consumption-stimulant policy, Japan experienced a negative growth of its economy (-1.3%) quarter on quarter during the fourth quarter of 2010. Affected by such disasters as earthquakes, tsunami and nuclear radiation in March 2011, the Japanese economy is likely to continue a negative growth in the first half of the year. According to the evaluations made respectively by the World Bank and the Japanese government, the disasters have resulted in a downturn of 0.5 percentage points or so in Japanese economic growth.

Japan is China's major trade partner and the traded commodities are comparatively amassed. China's exports to Japan account for 8% of its export total and its imports from Japan make up 12% of its import total. Of all exports to Japan, machineries, textiles, chemicals, base metals and foods account for a total of 72.5% of the export total and, of all imports from Japan, machineries, base metals, optical devices, cameras and music instruments make up 85.3% of the import total. The short-term recession of the Japanese economy and the shrinkage of the import and export trade have produced some impact on the production and operation of China's above-mentioned industries. Nonetheless, the post-disaster reconstruction in Japan will give an impetus to such industries of China as building materials, engineering machinery and food. The readjustment of the global supply chains and energy structure brought about by the nuclear accidents in Japan is likely to generate a long and medium-term effect on the world economy and on Chinese economy, which merits our further concern.

3. Slowdown of the growth of China's aggregate demand, yet still on a normal level

In terms of the overseas market demand, China's exports increased by a year-on-year 21.3% in the first two months of 2011 and the country's imports grew by 36%, leading to an accumulative total of 890 million US dollars of trade deficit. Compared with the same period and the whole of the previous year, the export growth has reduced by a big margin. In 2010, China's rapid export growth was realized on the basis of the negative growth in 2009. Therefore, the downturn of the export growth in 2011 has come up in line with the expectations. In fact, the export growth rates in January and February have held the line in the main with the percentage of 21.9%, an average in the same periods from 2001 to 2010.

In terms of the domestic demand, when investment growth remained relatively stable, the consumption growth declined. From January to February, the total volume of the social retail goods increased by 15.8%, year on year, down 3.3 and 2.6 percentage points respectively as compared with December and the whole of 2010, and the growth in real terms dropped by a wider margin after allowing for the price rise. The decrease in automobile sales growth has been the main reason. From January to February, the automobile sales growth dropped by 31 percentage points as compared with the same period of the previous year, while in recent years the proportion of automobile sales in the total volume of the social retail goods has reached an average of 23%. What merits attention is that there has been an evident difference between the total volume of the social retail goods and the household consumption in national economic accounting. In household consumption, the expenditure on transportation and communication accounts for an average of 12.5% and 11% respectively of urban and rural household consumption. The growth in automobile sales has been declining, which exerts less influence over household consumption than the bigger proportion of the automobile sales in the total volume of the social retail goods.

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