Special
Report: Global Financial Crisis
By Xinhua Writer Cheng Yunjie
BEIJING, May 3 (Xinhua) -- Decoupling from the world,
and the economic downturn much of it is experiencing, has proven impossible for
China. But its resilience is receiving more recognition, with many leading
financial institutions upgrading their 2009 growth forecasts since mid-April.
The adjustments for gross domestic product (GDP)
growth, ranging from 0.5 to 2.3 percentage points, were based on signs of a
turnaround in the first quarter. These indicators included
stronger-than-expected real GDP growth, recovering property investment, a
pick-up in power consumption and a surge in bank lending.
Merrill Lynch Co. said it expected China's GDP
to grow 7.2 percent in the second quarter and 8 percent this year, while Goldman
Sachs raised its projection from 6 percent to 8.3 percent, the most optimistic
forecast so far. Other forecasts include UBS, which raised its estimate by 0.5
point to 7 percent and CLSA Asia-Pacific, which lifted its outlook by 1.5 point
to 7 percent.
China's policymakers can take heart from these
forecasts. Every upward revision, big or small, given the global economic
slowdown, might point to a better chance for the nation to achieve its 8-percent
growth target. That level of growth is considered necessary to raise living
standards while maintaining social stability.
But there's still the question of whether rapid
growth is sustainable. Some analysts believe it isn't unless China can rebalance
its economy and achieve higher efficiency, lower environmental costs and a more
reasonable balance among investment, trade and consumption.
QUANTITY OR
QUALITY?
In an interview with Xinhua, Stephen Roach, chairman
of Morgan Stanley Asia, urged Chinese authorities to get more serious about
stimulating private consumption because the global economy remains "pretty weak"
and might only achieve a weak recovery.
"China has responded to the crisis the way it has
always responded to global problems. That is, using proactive fiscal stimulus
mainly in the infrastructure area to provide temporary support in the downturn
until the global economy comes back. It worked in the 1997 Asian financial
crisis and the 2000-2001 mild recession. But this is a different sort of
problem," said Roach.
"Once the stimulus wears off and if there is no
follow-through, the Chinese economy will weaken again. I don't think exports
will recover in the weak global economy."
Domestic economists voice similar worries, saying
that the speed of growth doesn't matter as much as the quality. Liu Shangxi,
deputy dean of the Research Institute for Fiscal Science at the Ministry of
Finance, said that the 6.1-percent year-on-year growth in the first quarter had
been "fairly good" for China. But, he said, "sometimes, it's worth slowing down
a bit to have the economy move more stably."
Wang Xiaoguang, an economist with the National
Development and Reform Commission (NDRC), the chief planning agency. said that
the government's annual growth target had become mostly symbolic.
For five years in a row, the target was 8 percent,
and for five years in a row, the growth rate overshot the target. Wang said the
government had faced a dilemma: a cut in the target might undermine public
confidence while a rise might tempt local governments to over-invest to meet a
high growth target.
The turnaround signs mostly reflected the impact of
the 4-trillion-yuan (586 billion U.S. dollars) stimulus package. Meanwhile,
retail sales still trailed investment in contributing to growth. Local
economists warned that the economy remained unbalanced and vulnerable.
"Historical records show that adjustments in the
Chinese economy would take two to three years, on average. Seven months have
passed since the impact of the global financial crisis began to tell on the
local economy.
"With a turnaround in sight, recovery might come
earlier than expected but there are still risks of a further slowdown," Chen
Dongqi, deputy chief of the Macro-Economic Research Institute under the NDRC,
told a business development forum in Guangdong in late April.
BUYING CURE
It's widely accepted among economists that China
should boost domestic private consumption by leading individuals to buy more and
save less. The key question is: how?
"Two big programs" Roach advocates call for doubling
the investment in social security immediately to 150 billion U.S. dollars and
establishing a goal of raising consumption as a share of the economy from 36
percent to 50 percent within five years.
"What I think is missing here is the social safety
net, social security pension and unemployment insurance. Because of the absence
of the safety net, China has seen a high level of precautionary saving," he
said.
Roach suggested that China develop a private pension
system in particular so total employee compensation could rise in tandem with
productivity. "Chinese companies need to partner with their workers and provide
medical care [and] retirement investing for their workforce. Chinese workers'
total pay package should have both wages and benefits," he said.
Liu agreed that the primary task in expanding
consumption was to raise incomes. "Securing the legitimate interests of workers
is particularly significant when the economy slumps. It would be like drinking
poison to quench one's thirst if businesses sought to expand corporate earnings
at the cost of workers' pay and benefits," he said.
Low labor costs and massive capacity have propped up
China's prosperity over the past decades. But the proportion of wages to
national income has been on a long decline since the 1990s.
Between 2002 and 2006 alone, economists estimate the
figure dropped from 62.1 percent to 57.1 percent. Meanwhile, the contribution of
consumption to GDP growth fell from 43.6 percent to 38.9 percent.
"A more meaningful index to judge the sustainability
of China's economic growth would be the proportion of wages to national income,"
Liu said. "If this ratio did not rise, people would remain poor, and thus
expanding consumption would be empty talk."
Chinese are far from wealthy. Only 4 percent of the
workforce, and just 10 percent of the urban workforce, earn more than 2,000 yuan
a month, the threshold for individual income tax.
As Chinese residents hold 2.43 trillion yuan in
aggregate deposits, economists say one immediate way to boost consumption would
be to stabilize spending on staple property -- including housing and automobiles
-- and support tourism and cultural activities.
"People spend much of their money on housing and
food. The government should encourage people to entertain themselves more," Wang
said.
CHINA 'NO
LOCOMOTIVE'
Although China might be the first major economy to
recover from the downturn, economists disagree on when China will return to
sustained high growth.
Morgan Stanley, for example, has forecast a firm
recovery by mid-year, but said sustainable growth through 2010 would still hinge
on what happens in other countries.
"China will be stronger. But will that strength be
enough to allow others to follow in its footsteps? I don't think so," said
Roach.
"Most of China's resilience comes from infrastructure
building, roads, property consumption ... [this] won't have an impact on the
United States and Europe. This resilience is only temporary while its stimulus
is local rather than global."
Central bank governor Zhou Xiaochuan also warned in
late April during World Bank-IMF meetings in Washington that the rebound in
China's economy had to be consolidated. He said conditions in China would permit
rapid economic development again, once macroeconomic policies such as the
stimulus plan took effect.
Challenging internal and external conditions, he
said, included continuously shrinking external demand, a relatively large
decline in exports, overcapacity in some industries, falling government revenue
and lingering employment pressure.
As China emerges from the shadow of the downturn,
together with many of its Western partners, the world is closely watching the
socialist market economy that it is still trying to develop.
It was interesting to see that there was much "the
ideologically-constrained West" could learn from China, just as there was much
China could learn from the West, said Roach.
"China has gone slow in many areas, especially in the
opening up of its financial market. But China made the right choice," he said.
"Focusing on stability is a huge plus for China. But
the nation must be vigilant in its financial policies, especially monetary and
regulatory policies, and not allow asset bubbles and financial innovations it
doesn't understand," said Roach.
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