Macro-economic control measures to stay
(Xinhua)
Updated: 2004-11-07 10:33

The latest economic indices show that China's economy is moving toward an anticipated soft landing as a result of intensive measures taken on the macro side over thepast 10 months aimed at curbing excessive investment in overheated sectors.

Both the Chinese government and academic circles, nevertheless, have cautioned it is still not the time to celebrate. To achieve the goal of a balanced economic development, those macro-economic control measures should continue to be maintained. This caution was underlined in October at a cabinet meeting presided over by Premier Wen Jiabao.

The National Bureau of Statistics (NBS) has announced that progress has been made in curbing excessive investment during the past three quarters, and national economy grew by 9.5 percent yearon year, a fall of 0.3 percentage points over the first quarter.

Xie Fuzhan, deputy director of the Development and Research Center of the State Council, said that indicates the government's efforts to cool the economy has begun to pay off as it has broughtits economy from breakneck growth to stable growth.

China's investment in fixed assets during the nine months was up 27.7 percent year-on-year, representing a drop of 15.3 percentage points over the growth rate for first quarter, and a decrease of 0.9 percentage points over the first half of the year.

Wang Xiaoguang, director of Economic Operation and Development Research Office of the State Development and Reform Commission, noted that the growth rate of investment in fixed assets in urban areas slowed down to 30.3 percent for the first eight months from 53 percent earlier this year.

Excessive investment over the past two years strained the country's resources and fragile financial system, triggering widespread brownout and shortage of coal and prompting the centralgovernment to order banks and local governments to cut back on construction projects and redundant industrial investments.

Over the weekend, NBS Director Li Deshui said the Chinese economy is in good shape as a whole, since its growth has been moderated but still fast and stable while the inflation rate is well within the tolerable level of 4.1 percent during January and September.

The jobless rate for registered urban residents at 4.2 percent by the end of September, thanks to the creation of 7.74 million jobs during the three quarters.

China enjoyed a trade surplus of US$3.9 billion and absorbed US$48.7 billion in actual direct foreign investment during the period, while its foreign exchange reserves totaled US$514.5 billion, up US$111 billion from early this year.

Its fiscal revenue jumped by 26.2 percent with a surplus of 321.5 billion yuan (US$39.2 billion US dollars). China also posted an income growth of 11.4 percent for farmers.

But the government acknowledged this round of macro-economic regulation is far from over, as the mechanisms triggering runaway investment expansion are still there and some critical economic problems remain unsolved.

It indicated that the scale of fixed-asset investment remains large and the number of newly launched projects continue to increase, and the issue of excessive investment in those overheated sectors may worsen if the government loosens its control, and grain security, farmers income and energy supply remain priorities on its agenda in the near future.

Finance Minister Jin Renqing told reporters last month China will "consolidate its progress in regulating the macro-economy" inthe coming months.

China will strive to prevent a rebound of excessive investment in such industries as iron and steel and cement through deepening the reform of investment mechanism and system, Jin said, while encouraging investment in agriculture, infrastructure and energy projects across the country, and offering assistance to western region and rusty industrial belt in northeast China.

Zhou Xiaochuan, governor of the People's Bank of China, the central bank, said that China's macro-economic control policies have achieved "fairly good" results, but are still facing pressure from investment and inflation.

"From this perspective, macro-control is still in the vital stage," he said.

In their proposals to the country's economic policy makers, Wang and his colleagues noted that China should maintain its macro control policies next year, increase subsidies to grain growers and expenditure for rural education programs, and improve its land and bank loan policies, including a relaxed bank loan policy to medium-sized and small firms.

On October 28, the central bank raised the benchmark interest rate by 0.27 percentage points, which is the latest effort to rein in over-heated investment.

Prof. Wu Jinglian, one of China's most prestigious economists, said the adjustment of interest rates would guarantee growing economic efficiency during the cooling process.

Experts hold that the hike of interest rates is the correct way to stem possible rebounds of blind investments, by imposing greater interest burdens to enterprises heavily hinge on loans and enhancing the cost of capital operation.

In view of Tang Min, chief economist with Resident Mission of Asian Development Bank (ADB) in China, the interest rate hike was targeting rising inflationary pressure.

He predicts the central bank might continue to lift the rates if the inflationary pressure persisted or increased. China's consumer price index (CPI) hit 5.2 percent in September and, for the first three quarters of this year, the figure stood at 4.1 percent.

But tightening bank loans and land supplies also made it hard for many small and medium-sized firms to get short-term bank loans for business operation, obliging local officials, entrepreneurs and experts to call on the central authorities to ease its lending policies.

Tang Shuangning, vice chairman of China Banking Regulatory Commission, told an economic forum over the weekend that the commission will help the country's commercial banks to better understand the central government's macro-control policies so as to ensure the economy grow in a healthier way.

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