New Challenges for Chinese Economy in 2005

    Investment, exportation and consumption are often dubbed as the troika pulling China’s economy growth in recent years.

    Firstly, we will discuss about exportation. With China’s entry into the World Trade Organization (WTO), the spread between its exports and imports has been narrowing gradually. In the first half of this year, there was even a brief period of trade deficit for the first time since China became a WTO member. According to experts, the trade surplus is expected to be only around 10 billion yuan this year. By 2005, the trade surplus will further decline when China fulfils more of the commitments made on its entry into WTO.

    Now let’s look at investment. Governmental investment accounts for the predominant part of the total investment volume in recent years as China has exercised an active fiscal policy by issuing a large amount of government bonds. According media reports, with China’s adoption of a steady fiscal policy from the year of 2005, the value of government bonds issued in 2005 is expected to drop by 30 billion yuan compared with this year. Moreover, the fall in non-governmental investment and investment by banks related to such a direct drop also cannot be underestimated because governmental investment through issuing bonds tends to have a powerful effect in terms of driving other investment activities. Some officials of the statistics authorities claimed there are signs indicating non-governmental investment is taking off, but is the investment boom sustainable? Is it artificially triggered by regional governments or driven by spontaneous forces? All these remain unknown variables.

    Last but not the least, we come to consumption. Stimulating consumption effectively has been a long-standing problem. The current consumption rate of the country has slid to a 25-years-low of 55.4%. It appears how to stimulate consumption has become one of the major challenges faced by the Chinese government.