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Strategies & Market Trends : China Warehouse- More Than Crockery -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (4931)	5/25/2005 12:31:06 PM
From: RealMuLan	Read Replies (1) \| Respond to of 6370

Chinese economy: stability first Last Updated(Beijing Time):2005-05-24 10:15 Over the past 26 years, Chinese authorities have been at risks in China's reform——obviously, the failure of China's state-owned economic mode has been realized and it is a full and steadfast conviction that a "market-based" economic system is the only doable solution for a sustainable economic prosper. Nevertheless, at every critical juncture for the reform, any decision shall be made out of consideration for its likely impacts on stability——economic stability, social stability, and most importantly, political stability. For China's part, the tension and pressure incurred from the overheated economy have posed a severe threat to China's stability. Last year, the Government has taken a series of measures to retrench and regulate the economy in the hope of cooling down the overheated economy. With the output value slowing down to 14.4 percent, by the end of 2004, we have every reason to believe that our efforts to slow down the economy have been effective and that the soft landing seems to be on the horizon. However, the recently released statistics were stunning: the industrial output value of China in January and February 2005 increased by 16.9 percent on a year-on-year basis, which was a far cry from the 8.9 percent growth in industrial output value released in this January. The original 8.9 percent is the average figure calculated on a daily basis so as to leave out the influences of shutdown of factory buildings during the vacations. The figure 16.9 percent shows that China's economy was actually accelerating notably in early 2005. It goes without saying that the continuing acceleration of industrial activities is a major setback, indicating that China's industrial activities have been re-heated. Great demands for raw materials due to an excessive growth has been in conflict with the overriding issue of stability. It follows that the slowdown of China's economic growth rate remains the major issue to be considered by Chinese leaders, as they are trying to harmonize the relationship between the objectives of growth, reform and stability. In the Government Work Report delivered by Premier Wen on March 5, he stressed on the necessity to adhere to the principle and policy of slowing down the growth. He also mentioned the over-investment in fixed assets and real estate bubbles, particularly the real estate bubbles in Shanghai. Shortly after his delivery of the Report, local governments and the People's Bank of China have taken relevant measures. Leaders in Beijing has declared that more measures will be taken to slow down the economy. Of course, the issue of China's currency has long been regarded as the key to financial stability. China's attitude towards this issue has been prudent yet reasonable. After comparing various exchange rate mechanisms, the consideration for the overall "stability" seems to have overrided all for other arguments discussed internally. For an economy in great transformation, the currency board system is thought of as the indispensable key to ensure the stability of its fragile financial system. China's decision on the currency issue has once again reminded us that China will not take any form of risks on issues concerning stability. As a country immersed in its tradition of self-containment throughout its 5000-year history, China, more often than not, fails to understand its role in a world in the broad sense. Globalization at a pace of "thousands of miles a day" will only make this potential difficulty more conspicuous. By keeping to its actual currency board system, China made a important signal to the unbalanced world——internal stability in the country overrides the consideration for the increasingly greater global risks. China, an export-oriented economy, will face a daunting challenge——greater risks in Sino-US trade frictions. Setbacks in dealing with the inevitable dangers facing US economy, which lacks savings, further stimulate US politicians and special interest groups to take China as the scapegoat. Recently, senators from both parties jointly demanded for legislation to order RMB to appreciate by 27.5 percent within 180 days, otherwise all Chinese goods to be sold in the US will be heavily taxed. Though the possibility of such a bill being passed is slim, the longer the currency board system remains in China, the more likely there will be high-level disputes in China-US trade relations. Interestingly, the whole world believes that China holds the critical key to the door of Asian currency adjustment, but in the author's viewpoint, Japan is much capable in this regard. General RMB index only returned to the level in early 2000. While the Japanese yen index is about 18 percent lower than what it was five years ago. In the meantime, Japan's balance of current account in 2004 is approximately 4 times that of China in the same period of time. Therefore, I believe that Japan has a much larger leeway than China in terms of currency adjustment. Source:CE.cn en.ce.cn