OPINION> Commentary
China's policy changes showing positive results
By Yi Xianrong (China Daily)
Updated: 2009-02-03 07:57

Despite being confronted with a string of uncertainties ahead, China's economy will be in a better shape than expected this year. Due to the gloomy internal and external economic conditions, the fast-growing economy of the past decades is now struggling to meet an 8 percent growth target.

According to newly released figures by the National Bureau of Statistics, the gross domestic product (GDP) of the world's largest developing nation reached 30 trillion yuan ($4.38 trillion) last year, up 9 percent from that in 2007.

The growth rate of the country's consumer price index (CPI), a key measure for inflation, was 5.9 percent on the average, and its investment into fixed assets was 17.23 trillion yuan, a 25.5 percent growth over the previous year.

Published statistics also show that some progresses have been made in the country's export, credit and consumption in January. All these indicate a raft of major macroeconomic measures embraced by the central government since last November are producing positive results.

China's economic development went through a severe trial from a range of natural disasters last year, from the paralyzing snowstorm in southern provinces early last year to the deadly May 12 earthquake in southwestern Sichuan province.

The US mortgage crisis-induced global financial tsunami also caused severe impacts on the country's economic growth. Also, after three decades of fast development since the reform and opening up program, the fast-growing economy is also at the crossroads of a cyclic adjustment.

The risk of an economic downturn loomed large from late last year. In the last quarter of last year, the country's economic growth rate dropped to the 10-year low of 6.8 percent. This strongly testified the country's economy is at the risk of a downturn because of the ever-deteriorating economic conditions at home and abroad.

It also meant the likelihood of a downward economic trend may last longer without a timely and decisive macroeconomic policy adjustment.

To tackle the global financial crisis and contain the economic slowdown, the central government made a major shift in its established macroeconomic policy. The prudent fiscal and tightened monetary policy was changed to the current proactive and moderately loose monetary one late last year.

Also, a $586 billion economic stimulus package was launched last November to expand slackened domestic demand and boost economic growth. To coordinate the central government's enormous stimulus package, local governments across the country have also mapped out their own economy-boosting programs.

More importantly, China's 9 percent GDP growth last year, a miracle in the context of the global economic recession, is expected to lay a solid foundation for the country's future economic growth and help it pull out of the current slowdown.

For the world's most populous nation, the 9 percent growth rate is also expected to enhance Chinese people's confidence in the future economy and help free the plagued world economy from a prolonged recession.

Starting from December, the country's credit business rebounded after experiencing a consecutive six-month decline. Statistics showed that in last December alone, the lending transactions by the country's financial bodies was 771.8 billion yuan, increasing by 723.3 billion yuan from the same period of the previous year.

It is estimated that the credit growth rate in January will be no lower than the previous month. The rapid increase in currency supply and bank lending should be attributed to the loosening monetary policy adopted by the central government.

The fast-growing bank credit business and a sufficient fluidity will not only offer desperately needed funds for those enterprises suffering fund shortage, but will also increase social investment and spur the real economy. It is known that an activated real economy will enhance a country's ability to fend off financial risks.

China has constructed a completely different financial market and banking system from the US and Europe. In China, once the government relaxes its monetary policy, commercial banks will be motivated to expand their credit business and increase fluidity. As a result, the market will be reactivated soon.

However, the case is completely different in the US and European countries. In these nations, once their governments inject funds into their banking systems from which emerge signs of a financial risk, people would immediately draw a common conclusion that the risks would become more serious. Such a conclusion will cause the prices of bank shares to steeply decline, which will further contribute to the contraction of bank and market fluidity.

Such differences from their US and European counterparts indicate that, with the established financial system, Chinese's banks have developed certain capability to resist market risks. This will be the key to ensuring a steady economic growth for the country in the future.

The author is a researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences

(China Daily 02/03/2009 page4)