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In the first six months of the [current] year, China posted 7.8 percent growth in gross domestic product, a figure that might be inflated as local officials are eager to show good results. But even if this is taken into account, China's growth remains significantly higher than that of the US, where the economy is approaching zero growth.
In the same period, China's retail sales of consumer goods rose by 10.3 percent, slightly higher than the 9.7 percent of the same period last year. Consumer prices rose by 1.5 percent in July, outstripping the 0.3 percent increase in prices for the whole of 2000. Yet prices of clothing, household appliances, transportation and communication continued to drop.
In other words, internal demand is growing but many prices are falling sharply. The textile industry, light industry, telecoms and transportation companies - all sectors where state-owned enterprises (SOEs) still dominate the market - are cutting prices. On the other hand, the Finance Ministry said fiscal revenue in the first six months of the year was 787.2 billion yuan (US$95 billion), 26.2 percent higher than in the same period last year. The largest contributors here are SOEs - a fact confirmed by the ministry's July announcement of a plan to overhaul the now outdated tax system. The reform will try to bring in more revenue from the private sector, an indication that SOEs contribute most of the revenue.
Thus, the data show that SOEs are both dropping their prices and paying more taxes; in other words, their profits are higher. And this indicates that SOE reforms are working, providing more goods and services at lower prices. SOE efficiency has improved, contributing to the overall performance of the country, where the efficiency of the non-state sector is known to be higher..
This rise in efficiency is an element of a bigger picture. In the past six years, China's growth rate has been higher than that of the US, while the inflation rate has been lower. And the prospects, unlike those of the world's other seven largest economies, are not gloomy. Exports could grow by just 5 percent this year, compared to the nearly 28 percent of last year. Yet, in the first six months, contracted foreign direct investment grew by 40 percent, a measure of both foreign and domestic confidence (as a large chunk of FDI is re-imported private Chinese capital). More money is expected to pour in over the next months as China approaches entry into the World Trade Organization (WTO) early next year.
Moreover, during the January-June period, investment in fixed assets surged by 15.1 percent year-on-year. Investment by the private and collective sectors jumped 7.5 percent, with the real estate and automobile sectors leading the way. Overall increasing domestic demand contributed 93 percent of the 7.9 percent GDP growth.
Banks are more solid. Deposits now exceed loans by 2.7 trillion yuan (some US$326 billion) while the four commercial banks claim a net drop of 2.1 percentage points in their non-performing loans in the first half of this year. The government could harness these funds with bond issues, and in fact the Ministry of Finance plans to issue 150 billion yuan (US$18 billion) of bonds this year.
Some Chinese economists argue that more money should be spent to redress the bad debts situation. However, the prevailing view is that the government should spend more money to boost the economy and internal demand, due to the poor world outlook for exports. Bad debts would become a smaller percentage of GDP as the overall economy grows.
We can see, then, an improvement in the situation of the banks, the SOEs, and of course the private and non-state enterprises. These improvements in turn allow China to produce electrical appliances at lower prices, which fiercely compete with Japan's traditional exports. Some Japanese analysts blame this competition from China for contributing to the present weakness of the Japanese economy, and then argue for the devaluation of the yen or the revaluation of the renminbi. In this case, their judgement seems in line with that of China's black market, which now puts the yuan at 8.20 to the dollar.
Adjustment of the exchange rate between the Japanese and Chinese currencies seems a shortcut around a very complex situation, in which not only Chinese but also South Korean and Thai goods, sometimes with Japanese brand names, compete with products from Japan. In fact, this renminbi "revaluation" points at other problems that have been growing in China and that the government is tackling without touching the renminbi exchange rate.
From:
atimes.com |
