[BW04/09/01]Downturn? What Downturn?: Beijing is determined to sustain growth even if Asia slows
Global markets are jittery, Japan's economy continues to flounder, and the U.S. may soon be sliding into recession. It's a triple-strength tsunami that already is crashing into much of Asia, pummeling exports and prompting predictions of a prolonged period of sluggish growth.
Will the wave wash over China, too?
The quick answer is no, at least if one believes the optimistic numbers emanating from Beijing. The Chinese government is projecting economic growth of 7% this year, down from 8% in 2000, but well ahead of most other emerging-market economies. Retail spending is up, foreign direct investment continues to pour in, and China's booming domestic market is producing tens of thousands of jobs.
But China is not completely immune from the rest of the world's troubles, as top officials acknowledged in recent discussions with BusinessWeek. After surging 28% in 2000, export growth may slow sharply. Crucial shipments of toys and textiles dropped 10% in the first two months of the year compared with 2000, while orders for such high-tech equipment as computers and telecommunications switches fell 20%. "I'm very concerned," says Shi Guangsheng, Foreign Trade and Economic Cooperation Minister.
The last thing China needs right now is a serious downturn. Such a development could undercut Beijing's economic reforms just as the nation clears the final hurdles to joining the World Trade Organization. That's why Shi and other top Chinese officials are determined to keep the mainland economy roaring along, much as it did during the 1997-98 Asian financial crisis. They also insist that a step-up in merger activity and corporate restructuring will go ahead as promised.
ECONOMIC GOOSE. As during the crisis, Priority A is ensuring that strong domestic demand continues unabated. In 2001, the Chinese government will float $18 billion in bonds to build roads, power plants, and railways, the third year in a row it has used public money to goose the economy. The medicine, for now, is working: Deflation, a worry since the crisis, has bottomed out in recent months as consumers began to spend again. In the first two months of this year, retail sales were up 10.4% over the same period in 2000.
To reach the 7% growth target, China will also need to continue attracting a flood of foreign direct investment. That certainly should be no problem. Last year it took in $40.8 billion in FDI, second only to the U.S. In January and February, investment was up 24% over the same period last year. Contracted investment--promised but not realized--was up almost 50%. Dai Xianglong, governor of the People's Bank of China, reckons optimism over China's WTO prospects will spur FDI to $45 billion a year for the next five years. Predictably, China is awash in hard currency after years of export growth. Dai says reserves total $160 billion and will grow to $200 billion "in the near future." That will allow the Central Bank to hold the yuan's hard peg to the dollar, even as the Asian currency markets get choppy.
Reforms will also continue apace, officials vow, regardless of Asia's ups and downs. State-owned corporations will modernize, shed workers, and be closed if they don't perform. China Securities Regulatory Commission Vice-Chairman Gao Xiqing hopes this year's crop of initial public offerings will match or exceed last year's tally of 145 firms. Bank reform will go ahead, too. Lenders are cutting staff and closing branches. Dai says they are also quickly getting nonperforming loans off their books. That can't come soon enough: analysts say 25% to 40% of the country's $1 trillion in loans are in trouble.
No one expects China to emerge from the global downturn unscathed. One worry: As China enters its third year of heavy deficit spending, the government's fiscal burden may be growing too weighty. Even Dai admits government debt is "not a small figure" when unrecoverable bad loans and China's surging social security costs are added in.
China's command economy still forms its chief shield against a global slump. At the same time, officials understand that these protections will disappear with WTO membership. But as gloom settles over the rest of Asia, China seems safe for now.
By Mark L. Clifford and Dexter Roberts in Beijing |
