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Economic Recovery in H1 Remains on Target
Economic Recovery in H1 Remains on Target
UPDATED: July 30, 2010 NO. 31 AUGUST 5, 2010
No Need to Panic
Zhuang Jian, senior economist at the Asian Development Bank, China Representative Office

After blistering growth in early 2010, the Chinese economy has showed signs of slowing down, with investments and bank credit tapering off. China's GDP in the second quarter grew 10.3 percent year on year, compared with a strong 11.9 percent in the first quarter. Meanwhile, the once-robust manufacturing sector is also losing some steam while exports face bleak demands amid world economic gloom.

If China adheres to present macroeconomic policies, the slowdown is likely to continue for the rest of the year. But there is no need to panic. The downward trend is in large part because the quarterly comparison base is becoming more demanding. A severe government clampdown on the roaring property sector also played a big role.

The economy remains on solid footing and has the potential to regain lost ground. Despite uncertainties looming ahead, China is on its way to achieving growth well above 8 percent for the entire year. This should be a reason to cheer, given the fact that many other nations are still reeling from painful recessions.

One priority of China has been to rebalance the economy and rely more on domestic demands. The good news is the efforts are already yielding results. Reflected by booming retail sales, consumption has held up well to fill in the gap left by lackluster exports. In addition, the economies in the less developed western regions are picking up momentum. Investments in high-polluting and energy-depleting industries also declined in the first half of this year. While this may require a compromise on short-term growth rates, given its positive implications for growth sustainability, it is well worth the effort.

The pro-consumption shift is a long-term project that requires patience and persistence. Efforts are still needed to improve the social safety net and provide more incentives for the Chinese to spend.

The government's measures to cool property fever are necessary. The overheating real estate sector allowed room for speculation, posing a threat to the stability of the economy. Besides, many residents had saved every penny to buy expensive houses, making a dent in consumption. But the question is whether the property gloom is likely to drain the life out of the economy as it affects a string of related sectors, like steel and cement. It is necessary for the government to let some air out of the housing bubble and at the same time avert too heavy a blow to the property sector.

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