Wang Zhihong, manager of the largest shoe retailing market in southern Beijing, has high hopes for 2007. "Next year must be better than this year," Wang, of Dakang shoe market, said confidently. Wang said that in 2007, the market is hoping to double the sales revenue of this year.

Already, tens of thousands of shoes are sold each day from his market. Wang's confidence stems from his belief that "the consumption level of Chinese people will be higher in 2007 than that of this year."

The Chinese Government also is optimistic about economic growth in 2007. The Central Economic Work Conference, which closed on December 7, stated that the Chinese Government will make sure the economy will grow soundly and fast in 2007.

Many economists and experts are also expecting sound and stable economic development in 2007.

Singing to the tune of stable development

"The Chinese economy will develop stably and the growth speed will slow down," according to a macroeconomic analysis report issued by the State Information Center in December.

This estimation is echoed by Ma Kai, Chairman of the National Development and Reform Commission, who emphasized that stable economic development is key and huge fluctuations must be avoided.

Instead of pursuing only "rapid" economic growth, the Chinese Government pointed out that "sound" economic development should come before "rapid."

The Central Economic Work Confe-conference takes place at the end of every year. This year, the emphasis on "sound" development shows that the Chinese Government emphasizes more economic development quality more than growth in terms of quantity.

Investment, exports and consumption are three major factors driving economic growth. The Chinese Government has made clear that China will strike a balance in its international payments, which means balancing imports and exports.

According to the meeting, China will vigorously promote imports and expand Chinese companies' overseas investment and cooperation.

Beginning in the second half of 2006, China already enacted several policies dedicated to promoting a balance in international payments, adjusting the foreign trade growth pattern and upgrading the utilization quality of foreign investment. Those policies will be further implemented in 2007 and their influence on imports and exports will manifest itself step by step.

The State Information Center estimated that in 2007, China's international trade scale will further expand, the growth gap of imports and exports will be shortened, and the international trade surplus will be expanded but with a slowdown in speed compared with 2006.

Controlling investment is another major task. The Central Economic Work Conference pointed out that the government should reasonably control the investment growth in 2007 and strive to optimize the investment structure. The government will encourage consumption, especially farmers' consumption, adjust the allocation pattern of national income, and strive to increase the income and consumption level of farmers and urban low-income residents.

The State Information Center noted that fixed assets investment, guided by policy, is expected to fall steadily. The policies and measures adopted in 2006, and aiming at curbing the excessive investment in fixed assets, will play their due function in 2007. Overgrowth of new projects will be checked. Some projects that are inconsistent with national requirements will be suspended from construction. This will help to cool down the fixed assets investment. It is estimated in 2007 that social fixed assets investment will grow 20 percent from 2006.

There are many factors that help to maintain the relatively rapid growth of consumption. In recent years, the Chinese Government has placed much emphasis on boosting domestic consumption, which will in turn promote economic development. For instance, it seeks to increase the income level of poor people, raise the pension standard of retired workers and reform the salary system of civil servants. Meanwhile, the government is working to perfect the social security system and pays much attention to resolving problems existing in education, medical treatment and housing.

"Those measures surely stimulate people's consumption," said Wang. He believes that the income of rural and urban residents has both maintained a relatively rapid growth and will continue in 2007.

Consumer confidence has indeed been on the upswing.

In 2006, the consumer price index rose by 1.4 percent. The government's effort to expand domestic consumption will continue in 2007.

Further, the Organization for Economic Cooperation and Development contended that China's GDP growth rate in 2007 could be 10.3 percent.

Possible difficulties

Zhang Liqun, Director of the Macroeconomic Department of the Development Research Center of the State Council, noted that the major problems in 2007 will be the large quantity and excessive growth of foreign exchange reserves and money supply, and the conflict between economic development and both resources and the environment.

Zhang noted that China's foreign exchange reserves have already surpassed $1 trillion-a world record. The growth of foreign exchange reserves is driven by two factors. First, it is driven by the expansion of the international trade surplus. Second, foreign investment in China is bigger than China's investment in foreign countries. The ever-expanding foreign exchange reserves reflect the imbalance of international payments, which is unfavorable for stabilizing the exchange rate, foreign trade, or the utilization of foreign investment.

"It is hard to stabilize the money supply under such imbalanced international payments," said Zhang. "Excessive growth of money supply will continue in 2007."

In 2007, the conflicts between economic development and both resources and the environment will keep growing. Zhang pointed out that in the first half of 2006, the energy consumption per unit of GDP rose by 0.8 percent; the emission of chemical oxygen demand reached 6.896 million tons, up 3.7 percent year on year; and the emission of sulfur dioxide hit 12.746 million tons, up 4.2 percent over the same period last year.

At present, and for a considerable time in the future, China will be in an industrial period buttressed by the heavy chemical industry. So resource consumption and environmental pollution, to some extent, will increase.

Gao Huiqing, a researcher with the China Society of Economic Reform, pointed out that the economic development of China in 2007 bears the following hidden troubles.

First, the investment impulse of local governments cannot be rooted out in a short period of time. Under the constant macroeconomic control efforts of the Central Government, the local governments' investment activity will slow down. However, in order to boost regional revenue, local authorities will still be tempted to expand investment.

The second problem is employment pressure. Ten years ago, a 1 percentage point increase of GDP could provide job opportunities for over 940,000 people; five years ago, the same increase could offer 800,000 jobs; but the 1-percentage-point increase of GDP in 2005 yielded only 630,000 job opportunities.

In terms of labor supply, there are over 7 million state-owned and collective enterprises' laid-off workers with another over 8 million registered unemployed people in urban areas. Furthermore, more than 9 million newly added laborers are surging into the job market every year. In total, over 24 million urban labors have to be employed each year.

Farmers' employment situation is also tough. About 120 million to 150 million surplus rural laborers must be transferred to non-agricultural-related industries for work.

Therefore, even if the GDP growth reaches 10 percent, only 7 to 8 million job vacancies can be provided, which will eventually take a toll on economic development.

Gao noted that the third hidden trouble is overcapacity, which is one of the most important elements affecting sound development of the Chinese economy. Judging by economic development in 2006, in spite of some good signs shown in this area, overcapacity is not totally rooted out. The investment growth rate surpassed 20 percent in pig iron, crude steel and cement. From the second half of 2006, the growth rate of fixed assets investment has slowed down and will continue to cool off until the first half of 2007.

"On the one hand, the market demand is decreasing, but on the other hand, a lot of new projects will be put into place," said Gao. "Considering the fact that exporting will be curbed, overcapacity will still plague Chinese economic development."

The year 2007 marks the first year after the transitional period of China's WTO accession. Competition in every industry will become fiercer, especially in key sectors like finance and oil, which will be confronted with ever-increasing foreign companies.

As for China, with its incomplete supervisory system, how much influence will foreign companies bring to China? Will there be a negative impact? Will uncertain elements in the international economy cause economic instability in China? Those questions still remain unanswered for the Chinese economy.