Indications for policy, market and macro economy in 2005
Researchers from the State Council have presented their outlook for the policy, market and macro economy for 2005.
The latest report by the Development Research Center of the State Council has spotted out intrinsic dilemmas including the economic expansion "in a rough way", possible rebound of fixed asset investment which was reigned by administrative harness, the lack of mechanism to sustain the rise of grain production and farmers¡¯ income, the lingering systematic problems making the bottleneck of energy supply, the momentum pushing the housing prices up sharply, and the further reform on the financial system.
The report believes the country¡¯s economy will keep running fast at a apce of 8.5 percent. Increases will still be seen in investment, exports and consumption at 20 percent, 15 to 20 percent and 10 percent respectively. A 3 percent movement of consumer price index is moderate enough to pose no sweeping inflation threat. The tight supply of coal, oil, and power will be eased much while the situation for transportation will still be serious.
The report suggests that more economic and legal tools be employed to consolidate the achievements of the macro-control campaign and more attention be given to the agriculture. It insists that further reform and systematic arrangements are the only right solution to any problems threatening the health of the economy. It also called for more care to the underprivileged in urban areas and farmers who have to struggle in the pressure of rising prices.
Potential buyers in urban areas are more concerned about property and car prices. In 2004 housing prices were up fiercely especially in major cities like Shanghai due to the government¡¯s tough control over land and credit while the car market went through a hard time.
The report assures consumers that the growth of housing prices will be tempered in 2005 after a surge last year although the brisk demand will continue to prop up the price inflation.
There are more idle houses available on the market which help to narrow the gap between supply and demand. However, developers will still push the real estate investment 20 percent plus higher although the policy of cooling down the redhot sector will remain valid such as strict control on demolition, difficult access to credit, and more implementation of land control policy. This, plus the effect of the interest rate hike last October, is expected to work.
An expert from the Development Research Center of the State Council thinks there is hope for a 14 percent comeback of passenger cars in 2005 if the compulsory third party insurance, fuel oil tax, as well as other policies offering better services for consumers, are carried out and infrastructure of cities is improved. He also expects buyers would be more ready to burn their pocket as stable car prices are quite likely in 2005. However, the report that the fuel oil tax will be levied within this year has been proved to be not true.
In 2004 about 3.47 million units of passenger cars were produced and 3.46 million units were sold by domestic auto makers. That contrasted sharply with the boom in 2003. Things went better in the 4th quarter of last year but it still takes time before a turning point is there.
Potential buyers expect lowered import tariffs make imported cars cheaper, which will give them more choices. Domestic auto makers have felt the chill and introduced more new models to the market. Price wars spurred consumers' enthusiasm first and then hesitation for more price cuts. All of these have added uncertainties to the market.
China's export and absorption of foreign investment will face challenges this year. This opinion is held by Chen Dongqi, Vice Principal of the Academy of Macroeconomic Research the State development and Reform Commission.
Fueled by the robust growth of both developed economies such as US and Japan and emerging economies like China and India, the global economy enjoyed an expansion of more than 4 percent which was higher than the last peak in 2000. As this is regarded as the last climax in this round of 4-year business cycle, a 2 to 3 year slowdown is possible from this year. This makes unfavorable condition for China as the world¡¯s third largest trading nation and the largest destination of foreign direct investment.
Worries about competition from low priced Chinese products will give rise to more anti-dumping investigations against Chinese exporters. Chin has taken some measures to try to pacify foreign competitors. Tax rebates for some exports have been cancelled and duties are imposed on textile exports. Chinese manufacturers are urged to input more energy into R&D to offer more added value in their products.
The country will continue to place big orders for oil, minerals and other basic energy, as well as raw materials. There is also a swelling budget for aviation supplies. Boeing and Airbus won their largest contracts in China recently.
The mounting pressure on exports is one of the reasons that it is not the right time for China to revalue its currency. An expert who studies development strategies and regional economy at the Development Research Center of the State Council doubts whether the RMB is really undervalued if the nearly 5 trillion yuan of asset losses caused by bad assets and losses from issuance of treasury bonds are taken into account.
He also said that the international environment has also changed. US has realized the fact that a stronger yuan would not help its trade deficit with Asian-Pacific countries. As China is a large holder of US treasury bonds, it will keep less such bonds if RMB is appreciated. In this case, the market for US treasury bonds or the even the whole financial market will face the pressure of interest rate hike.
Chinese Vice Premier Huang Ju and Vice Governor of the People's Bank of China both denied the possibility of altering the exchange rates at the World Economic Forum a few days ago. And there are signs that hot money are withdrawing from China.
Foreign investors are still busy expanding their presence in China. But these days they are not happy about the voice of equal treatment between their Chinese competitors and them. Foreign funded enterprises are enjoying more favorable taxes. Experts and Chinese players are demanding a level playfield. They argue that it is the right time to do this and any delay will cause further losses to the whole economy. Speculation about the policy change is swirling around town. But the Xie Xuren, head of the nation's tax department, confirmed two days ago that they would accelerate the "studies" of a uniformed tax treatment.
Last year dozens of cities had dark days due to the sweeping power crunch around the country. At the end of last year a conference on the policy of a prick link between coal and power attracted much attention. It is reported that power plants are asked to share the spiraling coal costs.
The report of the Development Research Center of the State Council predicts a more than 10 percent climb of crude coal prices in 2005. Currently 90 percent of coal is consumed by the country¡¯s industry. And more than 75 percent of the amount was absorbed by power, metallurgy, construction materials, oil refinery and chemicals.
The report estimates that in 2005 the power sector would ask for another 120 million tons of coal while the metallurgy for another 30 million tons. The total of the new demand will stand at about 150 million tons.
China is drafting a law to encourage the use of renewable energy. Coal fueled power prices are much lower than that generated by wind or other renewable energy. This is expected to be changed by the law. Priority will be given to hydropower in the years to follow. The central government has observed the overinvestment on the power plants, especially the environmental damage that some power plants cause along the rivers. The latest case is that the Three Gorges Project Corporation may face punishment because of their failure of building power generators in compliance with rules for environmental influence assessment.
By People's Daily Online
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