Concern raised about overheating
(XING ZHIGANG,China Daily staff)
07/23/2003
While hailing the country's strong economic performance in the first six months, government officials and economic researchers are worried about an overheating economy amid an increasing number of alarming signals. The latest sign came from a top meeting on Monday, presided by President Hu Jintao, which urged that priority be given to adjusting the economic structure. "More strenuous efforts should be made to raise economic efficiency and improve economic quality while managing to maintain relatively-fast economic growth" in the rest of this year, said the meeting attended by the entire top leadership. Analysts said the move indicates that the central government is taking steps to prevent the economy from overheating as the nation is projected to enter another economic growth spurt. Last Thursday, the National Bureau of Statistics (NBS) announced that the Chinese economy grew by 8.2 per cent in the first half of this year, despite the fact that the gross domestic product (GDP) growth slowed down to 6.7 per cent in the second quarter due to SARS (severe acute respiratory syndrome). Yao Jingyuan, chief economist with the NBS, confidently predicted that growth would stay on the fast track in the second half. Economic researchers, however, sense growing signs of an overheated economy from government-published economic indictors. "Some macro-economic data have pointed to an obvious imbalance in the country's economic performance, suggesting the emergence of overheating," said well-known economist Zhang Shuguang, director of the board of the Beijing Unirule Institute of Economics, which forecast full-year GDP growth of about 8.5 per cent. The economist said China's economic development in the second quarter was troubled by imbalances resulting from flaws in its economic structure. Between March and June, the country's industrial output grew by 16.2 per cent year on year, the highest since 1994, while GDP growth dipped to the lowest point of 6.7 per cent in 12 years. In the same period, the retail sales - the main gauge of private consumption - recorded its slowest growth of 6.7 per cent in three years, in stark contrast with a nearly 30 per cent jump in investment. Economist Fan Gang said these economic indicators suggest that economic growth was largely boosted by an excessively rapid growth in investment rather than expanding consumption. "Investment growth, which stood at 31.1 per cent in the first half of this year, has hit a record high,"said Fan, director of National Economic Research Institute at the China Reform Foundation. "But even when the economy experienced overheating in the early 1990s, investment growth had never exceeded 20 per cent." Due to a high investment growth between 1990 and 1997, China's inflation rate once soared to between 10 per cent and 25 per cent. Yuan Gangming, a researcher with the Institute of Economic Studies at the Chinese Academy of Social Sciences, said the country's long-standing problem of weak consumer demand has yet to be solved. He added that economic development has grown more and more dependent on investment and export growth. In the first six months of this year, China's exports posted a year-on-year rise of 34 per cent. "That means the imbalance has become more serious in our macro-economy and economic growth was achieved only at the cost of improved economic structure," Yuan said. The worry about an overheated economy was also partially sparked by a quick increase in the country's money supply and bank lending. At the end of June, the county's M2 - a key measure of money supply including cash in circulation and deposits - was up by 20.8 per cent from the same period of last year, higher than the central bank's planned growth of 18 per cent. Meanwhile, outstanding loans of all monetary institutions totalled 15.9 trillion yuan (US$1.9 trillion), an increase of 22.9 per cent year on year. Zhou Xianchuan, governor of the People's Bank of China, the central bank, earlier warned against risks from the fast rise in lending. (HK Edition 07/23/2003 page7)
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