Print

Mail

wiki links

Analysis: China struggles to rein in rapid economic growth

As growth hit an 11-year high, China's economy seemed as unstoppable as ever last year, suggesting the government had only had limited success in imposing a measure of control, analysts said yesterday.

The world's fourth-largest economy expanded by 10.7 percent last year, despite constant calls from policymakers for more moderate growth.

"It only means the very strong economic momentum will carry through into 2007," DSB economist Chris Leung (梁兆基) said.

For China itself, the implications of double-digit growth are huge, and so are the possible consequences for the rest of the world, as a frantically active economy turns the country into one of the globe's biggest polluters.

Growth last year was fueled by steep rises in investment and net exports, paradoxically so, since government efforts were to a large extent focused on cooling down both areas.

"The challenge to balance the economy is still big. While investment growth has slowed, it is still high," said Sun Mingchun, an economist with Lehman Brothers.

Fixed-asset investment increased by 24 percent, while net exports soared 74 percent. But retail sales, the third leg in the economic tripod, were up by less than 14 percent.

These are imbalances that have been present for years, and there is only so much officials can do about it, by their own admission.

"Everyone is asking why it is that after taking so many mea-sures, domestic demand has not grown fast enough," said Xie Fuzhan (謝伏瞻), China's chief statistician, as he reported last year's data to journalists.

"I think the first reason is that our social security system is not complete... This has resulted in people being hesitant to consume, they have a strong feeling of risks, and they are saving more money," Xie said.

While the government cannot boost consumption to the extent that it would like to, it also seems incapable of reining in investment as much as it wants.

Last year's 24-percent increase in spending on new plants and equipment was not even near an 18-percent target set for the year.

"Eighteen percent was merely a stated government intention. The number seemed to me a little ridiculous," said Chen Xingdong (陳興動), a Beijing-based economist with BNP Paribas.

The factors that kept up investment last year will most likely carry over into this year, despite the official efforts to reign in activity, such as measures to curb bank lending.

"There's a very high likelihood of a rebound in investments in 2007," said Wang Qing (王慶), a Hong Kong-based economist with Bank of America.

"First, there's a high level of liquidity, and second, the effect of administrative measures to curb growth tend to be of limited duration," Wang said.

Consumption and investment evade government management even though they are both mainly determined by domestic factors.

Little wonder, then, that the government has had an even harder time controlling net exports, the third driver of growth.

"One of the external imbalances that China is facing is the excessive growth in the trade surplus and forex reserves," said Shen Minggao (沈明高), a Beijing-based economist with Citibank.

"Encouraging more imports is one way of coping with it, but it will have limited impact," Shen said.
This story has been viewed 1187 times.