Economy not in downturn; adjustments needed

(Xinhua)
Updated: 2008-09-04 09:03

BEIJING -- China is experiencing a temporary economic slowdown rather than a downturn, said Cheng Siwei, former vice chairman of the Standing Committee of the National People's Congress, raising the prospect that adjustments might be necessary.

"The domestic inflation, severe winter weather, devastating earthquakes and the weakening global economy in the first half year have pushed the country's economy to the edge of decline, but it is getting better", Cheng said in a China Central Television talk show aired on Tuesday night.

He said according to the business cycle theory, any economy develops in cycles, and 10 years constituted a cycle for China's economy.

The decade from 1990 to 2000 saw about a 14 percent growth of gross domestic product (GDP) in the first two or three years and then a slowdown to about 8 percent in the remaining period. Economic growth continued rising from about 7.3 percent per annum in 2001 to 11.4 percent in 2007.

The estimated GDP growth rate in 2008 may slow to around 10 percent. Worry over a downturn for the Chinese economy reemerged.

However, he didn't agree with the view that the Chinese economy faced a watershed, noting that this year's growth rate, compared with 2007, meant only a temporary slowdown lasting two or three years.

The country's decision makers now face the problem of combating inflation while at the same time boosting economic growth in the rest of the year to ensure a steady and fast economic development. He said the two courses could be both contradictory and mutually stimulating. It is the strategy which could maintain a strong momentum for investment, consumption and exports while controlling inflation at six to seven percent that matters, he said.

The government said last week it would stick to an economic policy that focuses on curbing inflation for the rest of the year.

Banks have been urged by the industry regulator to use the expanded loan quota to support small enterprises hit by rising costs and a credit crunch. Early in August, China's central bank raised the credit quota by 5 percent for nationwide lenders and 10percent for local ones.

These are among measures the country has taken to bring the economy back to a normal track, he said.

Cheng also suggested adjustments for the rest of the year and after.

He said more investment should go to agriculture, especially hi-tech enterprises and other enterprises closely related to people's lives, and environmental protection, energy conservation, education, public service and social security, among others.

People's income should be increased along with economic growth. More subsidies should be given to low-income groups. Lenders should expand loans for individuals, which only account for 12 percent of the total loans, far from the 60 percent to 70 percent levels in other countries, he said.

The fiscal revenue in the first half totaled 3.48 trillion yuan ($507.7 billion), up 33.3 percent from last year. The country should raise the personal income tax threshold to drive up consumption.

He said the export structure should be reformed as energy-intensive products were high in cost and thus not profitable. With the Renminbi's appreciation against the US dollar, the country should expand its exports to other regions.

In terms of inflation, he said six percent to seven percent with a backdrop of 10 percent GDP growth was moderate.

The producer price index rose 10 percent compared with a year-earlier. He said that might be the peak for the rest of the year as oil price rises would not take place, and the reasonable price should be less than $100 per barrel.

The consumer price index was up 6.3 percent in July over the same month last year, lower than the 7.1 percent increase in June and 7.7 percent in May.

Lack of talent in management and finance had always been a problem, he said.