New Challenges Face China’s Economy in 2005

    We often say figuratively that China’s economic growth in the past few years mainly relies on three carriages: investment, export and consumption.

    Let’s see export first. As China joined the World Trade Organization, the difference between its export and import are diminishing. And trade deficit appeared for the first time in the first half of this year for a short period. According to some experts’ estimation, trade surplus of this year will be only around RMB 10 billion yuan. By 2005, the trade surplus will be even less as more and more commitments for joining WTO are realized. Obviously, net export will not be the main momentum for economic growth.

    Let’s see investment next. In the past few years’ investment, with a proactive fiscal policy, and a large amount of treasury bond being issued, the governmental investment has been playing a leading role. According to relevant media’s report, after prudent fiscal policy has been practiced in 2005, the issuance of national debt will decrease RMB 30 billion yuan compared with this year. Directly reduced treasury bond investment is RMB 30 billion yuan, but since treasury bond investment has strong leading effect, other related bank investment, non-governmental investment decrease due to the 30 billion yuan decrease of treasury bond cannot be overlooked either. Some statistics officials claimed that non-governmental investment has shown evidence of start-up. However, whether the launched non-governmental investment can last long, and whether it is promoted by local government or it is a spontaneous force is still unknown.

    Let’s see consumption finally. Stimulating consumption has always been a tough issue. Now China’s consumption rate has fallen to the lowest point of 55.4% in the past 25 years. It seems that how to stimulate consumption has become one of the biggest challenges for the Chinese government.