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Avoid sharp slowdown

(China Daily)
Updated: 2008-04-03 17:26

Two weeks before China's first quarter economic figures become available, two international organizations have slashed their growth forecast for the Chinese economy.

Such quick adjustments highlight growing concerns over the negative impact a US-led global slowdown may exert on the Chinese economy.

The World Bank cut its forecast for China's 2008 economic growth to 9.4 percent in a report released on Tuesday. In February, it forecast 9.6 percent.

The Asian Development Bank yesterday reduced its growth forecast for China to 10 percent this year from 11.4 percent in 2007.

Both observers expressed worries over the ongoing global slowdown that is weighing on exports and expansions in China. And they all warned of the threat of rising prices to the country's growth prospects. But they remained optimistic about China's ability to achieve solid growth given the country's strong fiscal position to boost domestic demand.

Their diagnosis is quite pertinent to the Chinese reality.

Thanks to weakening external demand and an appreciating currency, China's net export plunged from $19.5 billion in January to only $8.6 billion in February. The January figure already marked the first monthly trade surplus under $20 billion since last May.

Meanwhile, the country's consumer inflation rose to a nearly 12-year high of 8.7 percent in February largely due to soaring food prices. And the producer price index also rose 6.6 percent in February, indicating a spillover of price pressure from the food sector to other areas of the economy.

These problems surely justify close attention from the Chinese authorities.

Yet, the less mentioned growth of domestic consumption may be a more important task that policymakers should promptly respond to.

To stabilize growth and prices, and facilitate change in the growth pattern, China must significantly boost consumption to offset the impact of slower export and investment growth.

But accelerated inflation is biting increasingly deep into the pockets of Chinese consumers, especially those of low and middle-income families. If the government cannot take proper measures to protect their purchasing power from continuous price gains, it is unlikely that consumers will increase their spending.

As exports and investment have been cooled, lukewarm consumption growth, not to mention a decline in consumer expenditure, may decisively slow down the growth momentum of the Chinese economy. Policymakers should be vigilant against a sharp slowdown caused by sluggish consumption growth.