By Xia Bin, Institute for Finance of DRC
Research Report No.148, 2011
A series of regulatory measures adopted by the central government since the beginning of the year have brought about a downturn of the present macroeconomic data, yet there still exists a pressure of price rise, and the housing prices are still rising in second-tier and third-tier cities. Meanwhile, small and medium-sized enterprises are facing serious financial straits. Therefore, some people who are concerned about market performance begin to worry about "over-regulation" and "hard landing" and appeal for a "change of direction". Some even wait for the central government policies to change in July and August. Besides, as a result of worries about the unsustainability of China's economic development over time, everyone agrees that the mode of development must be transformed if the Chinese economy truly wants to enter into a sound development. However, oceans of difficulties and lack of confidence will hamper the transformation. Therefore, in general, there are doubts and confusions over present complicated situations related to market performance.
I. We Should Correctly Recognize China's Current Economic Development and the Features of China's Economic Performance at Present Stage
How to dispel the doubts and confusions? Particularly how to foster people's confidence in transforming the mode of China's economic development and enable all people to overcome the difficulties with concerted efforts in face of the release of possibly more unsatisfactory data in June? It calls for an in-depth analysis of the causes of the current doubts and confusions, particularly we need to make a theoretically clear judgment on the basis of the objective recognition of the features of present China's economic development and those of China's economic operation at present stage. Added to this, we should enable ourselves to come up with a full set of proper and effective regulatory policies, rather than sporadic and administrative short-term policies. Only in doing so can people be made to believe that transformation of the mode of development in China is possible and hopeful.
1. Features of economic performance at present stage
The external environment facing Chinese economy is the long-lasting and profound readjustment of the global economic structure after the U.S. financial crisis.
During 2003~2008, the double-digit growth of the Chinese economy that once stirred up the Chinese people was achieved through China's active participation in economic globalization. The then global economy was also in a period of low inflation and high growth. Why did "excess prosperity" appear in global economy? One of the important reasons was that, as the world biggest economy, the United States, by virtue of the special hegemony of US dollar in international monetary system, devoted major efforts to carrying out expansive credit policies, causing huge deficit and deficit spending, stimulating not only its own economic prosperity but also bringing along the prosperity of the global economy, including the Chinese economy. This prosperity, stimulated by the world biggest economy through expanding credit, was originally unlikely to go on in the long run. Therefore, the globe-sweeping international financial crisis took place in 2008. Hence, an in-depth analysis of the essence of the global crisis suggests that the crisis has been actually a structural readjustment of the global economic disequilibrium characterized by the past "high consumption and low savings" in the United States and represented by "high savings and low consumption" in China, as well as a shrinkage and restoration of the balance sheets of crisis-hit countries. Naturally, such a readjustment will be long, which will inevitably slow down the global economic growth. The author once predicted at the end of 2008 that we should not count on the U.S. economy to immediately recover to a growth of 3.5% in two to three years after the crisis. Recently, Lawrence H. Summers, the former US treasury secretary, also expressed his worries that the US economy may encounter the experience of the "lost ten years" of the Japanese economy. So the in-depth global structural readjustment is a reduction of external demand for China, the globally biggest exporting country. Moreover, this process can by no means be handled in one to two years. It is an important feature for correctly judging China's economic development within several years after the global crisis.
The inner logic force of China's economic development determines that China's future economic growth will slow down gradually.
It is unlikely that any country can maintain its double-digit economic growth for a long period of time. Nevertheless, we know that in the long run China still has a potential and opportunity for its economy to grow relatively higher than that of other countries. We also know that, even if we do not take such restraining factors as environment and resources into account for the moment, international experience suggests that it is hard to maintain the investment for the lasting high growth seen in the past when the per-capita income approaches 5,000 US dollars; that a process is needed for containing the rapid growth of consumption when social polarization becomes serious; plus the gradual rise of the labor cost and the protracted readjustment and weakening of the external demand. Therefore, the Chinese economy will inevitably tend to turn gradually from a platform of previous double-digit growth to a platform of relatively slow growth. This trend is determined by the inner logic force of China's economic growth, rather than a matter of economic cycle, nor can it be dominated and controlled by macroeconomic policies. On the contrary, adoption of "excess" policy regulation will do nothing but aggravate the economic upheaval. What differs is the time early or later.
2. Features of present economic performance
Structural and cyclical contradictions intervein and duplicate in present Chinese economy, accumulating large numbers of historical issues. For instance, when the original issue of economic structure has remained unsettled, China and the world worked together in a right direction to combat the influence of the US crisis in previous two years, yet they put in an excessive amount of money. Excessive investment has aggravated the previous structural contradictions and has naturally further stepped up the cyclical economic overheat. For another instance, the real estate market dominating China's economic growth in a sense has seen its own serious problems of market structure remaining long unsettled (such as the lagging construction of low-rent housing) and, since the beginning of 2009, the change of the control over the housing market and the repeat of the related control policies have also intensified the pressure of cyclical bubble. For the third instance, when the consumption growth cannot be accelerated, though China has stressed people's well-being and expenditure on consumption by adopting policies for stabilizing the economic growth during the resurgence from the crisis, yet China has, for the most part, adopted the policies accustomed for the country for years for encouraging investment and export in terms of quantitative comparison. As a result, coupled with the repeat of the economic resurgence taking place in such countries as the United States, the structural and cyclical contradictions have been further made to intervein and more complicated in the Chinese economy.
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