A Basic Judgment over the Current Economic Situation
Since the beginning of this year， the national economy has maintained a momentum of steady growth. Some positive changes have occurred to the economic operation， laying a foundation for the growth of the whole year. At present， the national economy has the ability to keep a sustained and steady growth.
1. The residents’ expectations tend to be stable and the consumer demand is growing steadily. In the middle and latter part of the 1990s， the state took measures to divert laid-off workers in the state-owned enterprises， reform the government institutions， push forward the housing commercialization and reform medical care， pension and education systems. Necessary as they are， these reforms have had negative impact on the residents’ expectations and short-term consumer demand. After active adjustment in recent years， the comprehensive effect of reform has gradually become obvious – residents’ expectations have gradually become stabilized and consumer demand has grown fairly high. From January to May， the total volume of retail sales saw a year-on-year increase of 10.1%. During the “golden week” in May， the number of tourists surpassed 70 million person/times. The related industries also witnessed a fairly fast growth.
2. The prices grow slightly， and the pressure of market surplus has been alleviated. The total residents’ consumption level is up by 1.7% compared with that of May last year. From January to May， it is up by 1.1%. Although most of the products are in over supply， and the slight growth of prices is caused by the price rise in education， housing， public services， petroleum， petrochemicals and steel， the main price index is kept positive. This indicates that deflation is being eased and surplus pressure alleviated.
3. Fixed asset investment increases fairly fast， and housing， car and other pillar industries keep a strong growth momentum in investment and sales. From January to May， total fixed asset investment increased by 17.6% with an eight-percentage-point higher over the same period of last year. The investment in housing renovation and real estate grew by 26.7% and 26.5% respectively. The growth scope of investment and marketing in the housing， car and other pillar industries reached a rather high level. In the first quarter， the investment in housing completion grew by 28.6%， accounting for 68.1% of the real estate investment and representing a one-percentage-point higher over the last year. The commodity housing space sold and sales respectively grew by 3.14% and 48.9%， of which， the sales from individual purchases increased by 56.9%， accounting for 83.2%. In April， car production grew by 18.2% and sales by 38.3%. In large cities， such as Beijing， individuals bought more than 80% of the cars sales.
4. The quality and result of economic operation have been raised. From January to May， aggregative index of economic returns of industrial enterprises is 116.5， eight percentage points higher than that of the same period of last year and 2.3 points higher than that in the first four months. The amount of loss of enterprises in red declined by 10.4% against the same period last year. In the first four months， the state-owned and state-controlled enterprises realized an increase of 39.1% in profit after the deficit was deducted. The 12，700 state-owned and state-controlled large and medium-sized enterprises earned 66.09 billion yuan. Such enterprises in 31 provinces， autonomous regions and municipalities have generally reported profit.
As the positive changes occur to the economic operation， the economy will face quite a few difficulties in the latter half of the year due to the change of international economic environment and the negative impact of some in-depth conflicts in the domestic economic life. The economy will see a faster growth in the early months， and a slow-down in the latter half of the year.
Firstly， China’s export will be very much affected by a slow-down in world economic growth.
According to the forecast of the World Economic Prospect Report (Spring) issued by the International Monetary Fund in late April， the world economic growth will drop from 4.8% in 2000 to 3.2% this year. The world trade growth rate will drop from 12.4% of last year to 6.7%. Generally speaking， the global economy is continuing to slow down. The recovery of electronic products is not active. The price of petroleum is still above the long-term price. Most of the companies report a declining in profit. Trade protectionism has gained some ground， and the trade environment is getting worse than last year. Take a country-by-country look， we can see that there exist many disputes on the forecast of American economy， but the main divergence lies in the judgement over the length of the recession period and basic situation of economy. It is basically agreed that the US economic growth will fall by half and even more than previous year. Japanese economy has long suffered recession， and cannot go back to the track of normal growth in the near future. The export situation in Europe is further deteriorating. As a result of political turmoil in Indonesia， the economy in the ASEAN countries represents variable factors， whose negative impact over China’s exports and economic growth cannot be underestimated. In January-May， foreign trade growth was declining， of which， it grew by 3.5% in May. In terms of the orders gained by the export enterprises， the leading indicators of processing trade export and the situation in key export areas， the growth of exports in the latter half of the year may further drop.
The relative appreciation of renminbi exchange rate has also yielded negative impact on exports. China has kept a sustained favorable balance of current accounts， and the inflow of capital keeps at a certain scale. So renminbi is not under the pressure of depreciation. At the same time， imports grow faster than exports. The trend of a declining favorable balance shows that renminbi is not poised for appreciation. But as a result of the appreciation of US dollars against euro and Japanese yen， the US dollar-linked exchange mechanism of renminbi leads to its relative appreciation against other foreign currencies. This will， to a certain extent， weaken the international competitiveness of Chinese products， lower the prices of imported products， decrease the net exports and increase pressure on the domestic market.
If all the above-mentioned facts are considered， we can see that if the annual exports only increase by 5% and imports increase by 15%， the net demand from overseas will decrease by 150 billion yuan over the previous year. That may lower GDP growth by 1.7 percentage points. If the structural characteristics of China’s import and export products are considered， the pressure caused by the decrease of net exports will be very prominent. So China should try to avoid this situation.
It is a hard task to stabilize the growth of exports. The first countermeasure is to reform the export tax rebate system. Tax rebate according to plan should be replaced by rebate according the actual export while the rebate process should be hastened. According to statistics， nearly 100 billion yuan of tax rebate have not been granted. If tax rebate is not done timely， the costs of export enterprises will be raised， and their capital turnover will be difficult. This will weaken and even offset the effect of other policies to promote export growth. While the export tax rebate fraud is severely cracked down upon， the tax rebate should be paid in full sum and on time. The “tax exemption， offsetting and rebate” policy practiced by the state on foreign-invested enterprises could be adopted for the domestic export-oriented manufacturing enterprises. This measure will require the cooperation and support of local governments as they need to share one-fourth of the tax rebates. Second， while getting prepared to cope with more harsh situation， we should solve the problems and steadily develop the relationship with the main trade partners as the United States， Europe and Japan are stepping up anti-dumping efforts against Chinese products. At the same time， China should actively explore new markets， further implement trade diversification strategy and gradually reduce the dependence on the main trade partners in order to reduce risks. Third， we should keep a close eye on the change of US dollar’s exchange rate against other major currencies. An exchange rate adjustment mechanism should be set up to deal with the changes of current accounts and capital accounts. Fourth， China should further reduce the limitation over the foreign firms’ access to the monopolized industries and continue to encourage foreign direct investment in the already opened basic industries， high-tech industries and part of the processing industries as well as the central and western regions.
Secondly， the situation of medium- and low-income group has not obviously changed.
The farmers’ income has not seen substantial increase， and not enough effective measures have been taken to reduce their burden. The low-income group in cities and townships has been enlarged. The residents’ income in the underdeveloped regions has increased slowly. The situation of medium- and low-income group has not obviously changed. This has affected social stability and economic development. The problem could be seen from the following aspects:
It is more difficult for farmers to increase income and reduce burdens， and the rural market is developing slowly. In addition to a slow development of rural enterprises， most of the farm products are in over supply， and their prices are close to or higher than those at the international market， no effective ways have been found to increase farmers’ income in many areas. Some measures to increase farmers’ income have hardly gained obvious results. The correct policies and measures to reduce farmers’ burden have been constrained by inadequate local finance and the expenditure on rural basic education. Therefore， the results are not obvious. In the first quarter of the year， the rural and urban consumer product retail sales grew respectively by 8.3% and 11.5%. The gap of growth is widened from 1.3 percentage points to 3.2 percentage points this year. The reduction of summer grain this year will also affect the development of rural market in the latter half of the year.
The low-income group in cities and townships has been enlarged. Part of the state-owned large and medium-sized enterprises continue to lay off surplus workers. As the medium and small enterprises are undergoing structural reform， and fierce market competition has led some enterprises into a more difficult situation， workers and staff in these enterprises have earned less than before. By the end of the first quarter， the employees in cities and townships have been reduced by 4.8 million compared with the same period of last year and by 1.63 million as against the end of last year. The low-income group in cities and townships has been enlarged.
Regional gap is widening， and some areas are in a difficult situation. From January to April， the total industrial output value in the eastern， central and western regions grew respectively by 17.4%， 16.6% and 11.7%. There was a gap of 5.7 percentage points between the eastern and western regions. Due to a slow adjustment of ownership， industrial and product structures or the drainage of resources， the underdeveloped regions are plunged into a plight， as their enterprises become less competitive. Many counties and townships are in a very difficult financial situation. By the end of first quarter， 1，001 counties default more than 20 billion yuan of workers and staff’s salaries of government institutions， above that at the end of last year. According to statistics， the average debt borne by the townships is 6 million yuan and the average debt of the village is 200，000 yuan. In addition to rural financial shrinking， township enterprises and farmers lack good financial support. The economy below county level is generally lacking growth momentum. From both the current and long-term point of view， this is not conducive to the steady growth of national economy.
Increasing farmers’ income， reducing their burden， raising the income of low-income group in cities and townships and boosting the economy in the underdeveloped regions are of crucial importance to social stability and sustained economic growth. So the financial policy should play a more active role in regulating the distribution of residents’ income and promoting regional economic coordination. Since 1997， the financial income has kept a high-speed growth. In the first five months of the year， the financial revenue increased by 144.95 billion yuan， representing a rise of 28.9% than the same period of last year. The expected revenue growth of this year has been met. This has laid a good basis for the adjustment and effective implementation of financial policy. We could increase the financial support to rural reform and development， for instance， reducing and exempting the agricultural tax and special agricultural product tax in the current year in the underdeveloped central and western regions， offering temporary subsidies to cover the salary for the middle and primary school teachers in these regions. It will help raise the purchasing power of the farmers who account for the majority of the population and promote the development of rural market. For the central and western regions where economic development is slow and financial revenue cannot cover the expenditure， we will increase financial input to create necessary conditions for economic development. On the other hand， the government will increase transfer payment to guarantee the basic expenditure of local governments. In addition， the reduction of state-owned shares will also be sped up. Medium- and long-term treasury bonds could also be issued to supplement social security foundation. The coverage of social security system should be expanded to further raise the income of low-income group in cities and townships.
Thirdly， industrial growth slows down， and investment growth by non-state economic sectors also decelerates.
In the first five months， China has fulfilled an increase of 11.1% of industrial added value， of which， the growth was 10.2% in May. The growth in the 15 regions slowed down in that month， especially in some developed regions such as Guangdong， Shanghai， Jiangsu and Shandong. The solely foreign-owned enterprises， the joint venture enterprises and the cooperative ventures saw a 2.3 percentage-point deceleration. This indicates that the deceleration of world economy has affected China’s economic growth through the fall of exports， first of all， in the eastern coastal areas and the three types of enterprises mentioned above. In terms of investment， as the total fixed asset investment has been obviously growing since the beginning of this year， the investment by the non-state-owned enterprises has decelerated. In the first quarter， the investment by collectives and individuals grew by 7.6% (of which， investment by individuals grew by 3%)， representing a fall of more than 1.6 percentage points than last year.
The reasons are manifold for the slow-down of investment by non-state economy. The development of non-state economy still suffers lack of support from credit funds. In terms of total currency supply， we can see M1 and M2 increased respectively by 14.9% and 12.1% by the end of May， representing a fairly low growth in recent years. The growth of M1 fell by 7.4 percentage points compared with the highest point of last year. The unfavorable impact over the economic operation will gradually appear in some time later. In terms of currency supply structure， the growth of M2 since 1999 has been lower than M1. By the end of May， the difference between them was 2.8 percentage points. This is attributed to the low interest rate and diversification of residents’ financial assets after tax on interest is levied. It also shows that a large amount of credit funds have turned to current deposits of enterprises and institutions which remain in the virtual economy and have not entered the sphere of physical economy. In this sphere， the non-state enterprises， medium and small enterprises and high-tech enterprises that badly need credit support cannot receive financial aid. The financial institutions are willing to grant loans to large-sized enterprises or enterprise groups that enjoy good reputation. But these enterprises put the money into stock market because they cannot find good investment projects immediately， and they find the investment in production is risky and yields low returns. On the one hand， it leads to false prosperity of a virtual economy and increases the risk of the bubble economy. On the other hand， it causes the insufficient supply of funds &nbs
A Basic Judgment over the Current Economic Situati[全文结束]
