The result of the macroeconomic climate index, released by the National Bureau of Statistics (NBS) on May 29, showed that in April the index remained stable for the fourth consecutive month. This contrasts with the four months from September 2007 onwards, when the index showed an "increasing" trend. Are the four "stable" indices after four "increasing" ones indications that China's macroeconomy is moving "from a relatively fast growth to overheating?" When interviewed by China Economic Weekly, Xu Xianchun, Deputy Commissioner with the NBS, said that the Chinese economy is likely to enter a period of adjustment. In the next few years, China's economic growth will drop gradually.
A downward "turning point"
In economics, peak value and valley value of economic growth rates are called "turning points." When judging whether there is a "turning point," two circumstances must be excluded: normal fluctuations of economic growth, and sharp rises and falls. When economic growth drops gradually, we can judge that there is a downward "turning point." In recent years, the argument has never stopped in academic circles whether there will be a "turning point" for the Chinese economy.
We preliminarily judged that 2007 might be the peak for this round of high-speed economic growth, and in the future the economic growth rate will drop gradually. Analysis of gross domestic product (GDP) figures worldwide indicates that few countries or regions can keep a double-digit economic growth for five consecutive years or longer. Until now, we only find Japan, Singapore and Hong Kong have created such a record. Among them, Japan kept a double-digit growth for five successive years from 1966 to 1970 and Hong Kong kept similar growth from 1961 to 1965.
China's economic development cannot be divorced from global rules. The Chinese economy once retained a double-digit growth for five consecutive years from 1992 to 1996, with an average annual rate of 12.4 percent. The second round of double-digit growth came from 2003 to 2007, with an average annual rate of 12.8 percent. However, such high-speed growth cannot last long and there must be a gradual decline after the peak time.
Predictions by international organizations and forecast institutions on Chinese economic growth for this year are lower than the 11.9-percent growth of last year, which also indicates that 2007 might have been the peak for this round of high-speed economic growth.
High inflation after the "turning point"
Great downturns might be avoided for the Chinese economy after this round of high-speed growth comes to an end. Since the 1990s, there have been two cycles in China's economic operations. The first economic cycle was from 1990 to 1999. After the peak in 1996, economic growth reached a valley of 7.6 percent in 1999. The second cycle started in 1999, and economic growth reached a peak of 11.9 percent in 2007. Although this round of economic cycle has not yet ended, we can judge it different from the previous round of cyclical economic fluctuations, as this round may not be so sharp. Without unforeseen factors, the downward period of this economic cycle may reach a new valley value, but this valley value may not be too low. Hence, this economic cycle will show a tendency of slow start-up, uniformly accelerating, slow decelerating and stable landing.
Seen from the increase of the consumer price index (CPI) in recent years, the peak value of the first economic cycle was 24.1 percent in 1994 and the valley value was -1.4 percent in 1999, a gap of 25 percentage points. But in this economic cycle, the gap between peak and valley values was only 6.2 percentage points. Based on a comprehensive analysis of CPI and GDP growth rates, we judge that in this economic cycle, the peak value of CPI growth will come two years after the peak of GDP growth. That is to say, the peak value of CPI growth will be in 2009.
The inflation situation this year has been very serious. It had been expected to drop gradually from the second quarter, but now the drop will come later. Particularly the earthquake in Sichuan Province may further retard the decline of prices. At present, we must pay great attention to the problem of inflation, because if the CPI growth reaches a peak value in one or two years, it will impose huge pressure on the economy.
The tightening policy needs adjustment
At present, the Chinese economy is faced with adverse influences from the world.
On the one hand, world inflation is serious. According to statistics released by the World Bank, the global inflation rate rose from 3.9 percent in January to 4.1 percent in March, and the inflation in developing countries from 7.6 percent to 8.4 percent.
On the other hand, there will be obvious declines in the world trade growth. A report released by the World Trade Organization in April indicates that in 2008 the world trade development will face challenges of various uncertainties and that the world trade growth will experience large declines.
In 2008, the world trade growth will drop from 5.5 percent in 2007 to 4.5 percent and the declines will be inevitable.
The various complicated international factors make macro control more difficult. At present, we should pay great attention to two factors. First, we should avoid the joint forces of policy-driven tightening, the sub-prime crisis and its own economic development trend, which will lead to sharp falls of economic growth. Moreover, we should avoid the lag influence of a double-digit growth on the prices. |