Op-Ed Contributors

Maintaining rapid growth

By Xia Bin (China Daily)
Updated: 2010-09-13 08:17

Urbanization and consumption are certain to accelerate and steady China's development going forward

China's current economic concerns hinge on three fundamental questions.

What is its present condition? What problems does it face? What steps does it need to take next?

China's economy is inextricably linked to the global economy. Therefore, we must first make clear the logic of economic development or crisis. Only through proper knowledge will we be able to make right judgments regarding potential risks and rewards, and formulate unique policy measures.

The United States, as the key driver of global economic growth, enjoyed several years of sustained growth and prosperity prior to 2008. Yet, its overall policy was not without problems during the period. Its economy had relied too heavily on consumption (around 70 percent of its gross domestic product, or GDP) and the real estate market.

Sure enough, its economy collapsed in 2008 as a result of credit failure.

The credit bubble burst led to shrinkage of the property market. The ensuing financial crisis impacted the rest of the world.

The US government today continues to insist on Keynesian remedies, pouring millions of dollars to pump up the economy, but with little effect. In fact, it is arguable whether the Keynesian model can be applied indiscriminately. This means the US economy has been unable to recover fully during the short term.

China too faces similar problems.

The nation has, over the years, played a vital role in propelling the forces of globalization, and has benefited from it as well.

Ever since we joined the World Trade Organization (WTO) in 2001, rapid growth had been the order of the day, until it started slowing a wee bit from 2008.

The global economic downturn meant we too faced declining exports and insufficient domestic demand.

Today, the critical objective before us is to widen the domestic consumption base. The government's 4-trillion-yuan stimulus package is aimed at precisely that. Yet, there has been excess liquidity in the market.

By the end of last year, money circulation had increased by almost 30 percent, unprecedented in the last 30 years.

This either reflects industrial overcapacity or a property bubble, and both factors deserve immediate attention.

In a bid to solve these issues, China has resorted to macro-control policies - such as tightening the realty market and monitoring local financial platforms - since early this year.

These measures are expected to slow credit growth by way of tighter loan disbursals. And, this is one reason why China's economic growth this year has not kept pace with that of the previous year.

It is therefore prudent to say that our economy is growing, albeit slowly.

Having made clear the present economic situation, we can approach the second question: what economic problems do we face?

In my view, the core problem relates to the relationship between reform, development and stability. This issue has, in fact, been ever present since the economy was opened up over 30 years ago.