In October last year, Chinese exports increased 19.2 percent year on year. In January, however, annual export growth fell back to minus 17.5 percent. At the moment, developed countries have entered an economic recession and it will be difficult to restore the strong growth in demand for Chinese exports, which means that China must rely on domestic demand to revive its economy.
Second, China’s asset market is still in the doldrums, restricting any expansion in consumption.
Growth in housing prices suffered a sharp downturn from 11.3 percent in January last year to minus 0.4 percent in December and a further drop to minus 0.9 percent in January. Apart from this, China’s stock market indices fell by about 70 percent last year, and although they have seen a slight rebound this year, they are still struggling.
Finally, in terms of government expenditure, the annual growth rate for national fiscal income averaged 19.2 percent from 2000 to 2007. Last October, however, national tax revenue showed negative growth at minus 0.3 percent, the first occurrence of negative tax revenue growth since 1996. National tax revenue in January fell 17.1 percent year on year.
The Chinese government will have to deal with a deficit of 950 billion yuan this year, or 3 percent of GDP.
Unless foreign demand picks up quickly, fiscal policy and monetary expansion will only be able to solve China’s more urgent issues. These measures will not be sustainable in the long term.
Tung Chen-yuan is an associate professor in the Graduate Institute of Development Studies at National Chengchi University.
TRANSLATED BY PERRY SVENSSON
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