Chinese Economy to Meet New Challenges in 2005

    We often figuratively say that China’s economic growth in the past few years has been driven by a “troika”, the “three horses” being investment, export and consumption. (Investment, export and consumption are figuratively described as the three horses of a troika hauling China’s economic growth in recent years.)

    Let’s take a look at export first. The imbalance in volume between China’s import and export has been gradually diminishing ever since China’s accession to the WTO. In the first half of this year, China even ran a transient trade deficit, which is the first of its kind in history. It is estimated by experts that China’s trade surplus this year is expected to be only about 10 billion yuan. With its WTO accession commitments being fulfilled one after another, China’s current trade surplus with other countries is likely to be further reduced by 2005. Obviously, the “net export” approach will no longer be one of the major driving forces for China’s economic growth.

    Let’s now turn to investment. As a prominent player in China’s investment activities, the central government has issued a large amount of treasury bonds in the past few years in line with the proactive fiscal policy it has adopted. It is reported that the amount of treasury bonds to be issued by the government in 2005 will drop by 30 billion yuan since China is about to carry out a sound fiscal policy by 2005. As investment in treasury bonds can produce strong rippling effects, a reduction of 30 billion yuan in bond investment from the government will considerably discourage investment from banks and private sources, which is really something we can’t afford to overlook. Officials from China National Bureau of Statistics claim that there are already signs of private investment initiatives being launched. It will, however, remain to be seen just how far those initiatives can go and whether those initiatives are the results of self-motivation or the results of a local government-induced squeeze.

    Let’s finally take up consumption. The hardest nut for China to crack for a long time is how to stimulate consumption. China’s current consumption rate has slipped to 55.4%, the lowest point in 25 years. It seems that how to effectively promote consumption has become one of the daunting challenges the central government has to meet.