Will the Chinese economy cool off?
(Xinhua)
Updated: 2005-06-24 21:22

With declining investment growth and a low inflation rate in April and May, some economics experts, discussing whether the Chinese economy was overheating early this year, are now concerned about its cooling-off.

Though the scene might be too dramatic to believe, official statistics indicate that Chinese economic growth is slowing down.

The Consumer Price Index (CPI), a leading inflation indicator,increased by a moderate 1.8 percent year-on-year in April and May. Fixed Assets Investment (FAI) grew 26.4 percent in January-May period, 8.4 percentage points lower as compared with a year ago, mainly pulled down by the dropping real estate investment growth. China's recent trade friction with the United States and the European Union hindered the growth of China's export.

"It is true that the major two engines fueling the Chinese economy, investment and net export, have both seen their growth decline, but that does not signal a general cooling-down," Dr.Wang Xiaoguang, with the Economic Institute of National Development and Reform Commission, China's economic planningagency, told Xinhua.

"China's FAI grows too fast at this time last year, especiallyreal estate investment, arousing widespread concern for anoverheated economy. After a series of macro-control measures, thecurrent 26.4 percent growth is expected by the central government, " said Wang.

Xu Lianzhong, an expert with the Price Monitor Center of the NDRC, said that the current FAI growth is in the range of healthygrowth, and able to drive up the economy by the anticipated 8percent.

"Speaking of the 1.8 percent CPI growth, it indicated lessinflation pressure," acknowledged Xu. "The Chinese economy isentering a phase of fast growth and low inflation."

As for export disputes, Xu said that they could be resolvedthrough negotiation. Yet nobody can tell how much the influencemight be.

There is another hidden factor driving up the Chinese economy,often ignored by overseas experts, said Xu. "The enthusiasm of the local governments to develop."

"To pursue better evaluation of their work, they will not letlocal economy cool down," said Xu. "They are inspired tocontinuously explore new economic growth points."

Both experts agree that due to the macro-control measures,which have been in place for one year and a half, the Chineseeconomy is now experiencing a "soft-landing" and heading forhealthy development.

China's economy bid farewell to the five-year-long deflation in 2003, embracing a new round of economic growth. But following that, the bank loans increased dramatically, investment rocketed and apower crunch occurred.

To avoid abrupt economic changes, China took a batch of macro- control measures to rein in growth some overheated sectors at thebeginning of last year, prolonging this round of economicprosperity.

China's ongoing macro-control measures cut down overproductionin some sectors and reduced the possibility of deflation in thefuture," said Wang.

Though Wang and Xu said that China is not at risk of deflationat the moment, they voiced their belief that the central bankshould consider taking some precaution measures, like relaxing its money supply.

The growth of a broad money supply M2 in China, which coverscash in circulation and all deposits, quickened slightly to 14.6percent in May over 14.1 percent in April. However, China's target for M2 supply growth is 15 percent this year.