3 factors to affect China's economy in 2nd half
(People's Daily Online)
Updated: 2005-08-16 14:04

The uncertainty of a soft landing in the real estate sector, noticeable slowdown of the export growth and tight money supply are the three problems that will affect China's economy in the second half year, says an article published by the Macro-Economic Institute under the National Development and Reform Commission.

First, growth prospect in the real estate sector has been down remarkably, but whether an expected "soft landing" will be realized remains uncertain. One variable is the strength of the policy implementation. The implementation of the macro-regulations in real-estate sector will have a major impact on the final result of this round of macro-regulations. The new policies put out by the central government have been specially welcomed by the ordinary housing consumers, but their implementation might be greatly affected by some reluctant dealers and local governments.

The article analyzes that in the second half year, if the growth in real-estate sector fails to realize a "soft landing", it will be hard for this round of macro-regulations to yield the anticipated effect. Over-heated investment will re-appear and the bottleneck in resources will grow, and the shortage in coal, electricity, petroleum and transportation will intensify. Besides, bubbles in real-estate industry, if to continue, will sharply increase financial risks, possible big ups and downs in the economy, weaken long-term consumption capability as a result of recent excessive overdrafts, as well as higher cost in the tertiary industry, which will hinder its development.

Second, export growth is likely to see a remarkable slowdown in the second half year, which will impose heavy pressure on the economic growth in the short term. It will be seen in two aspects: first, industrial growth to be pulled down, leading to falling employment growth and slowed GDP growth; second, slowed growth of the production of export goods combined with accelerated release of the output capacity of products in excessive supply constitute greater pressure of deflation. These will not impose a big impact on China's economy in the long run. Favorably, slowed export growth will force domestic enterprises to improve the quality of their products for export and their performance.

Third, currently the financial environment appears to be slightly tight. Under the situation of plunged prospect of investment growth and continually slowed growth rate of consumer prices, there exist risks of over-adjustment of economic growth and increasing pressure of deflation. The tight financial and monetary policies are three-facet: first, the money supply is relatively tight; second, short-term loans have been decreasing, showing tight current capital of enterprises; third, the gross growth rate of loans has been greatly slowed.

As the article points out, the first problem will affect the stability and sustainability of the economic growth while the latter two will have a major impact on the short-term growth stability. These short-term problems will be gradually solved as long as properly responded to, and the foundation for the medium and long-term growth of the domestic economy will be consolidated.

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