China's Competitiveness
13.09.2004
China Business Summit 2004
A fierce global competitor for investment and jobs, China's own competitiveness and that of its corporations leave a lot to be desired. Corruption, poor logistics and a tottering financial sector offset the advantages of China's massive labour force. Though the factories that foreign investors build in China are world class, China's own companies will have to learn the kind of marketing and organizational skills that don't roll off a production line.
From a macroeconomic perspective, China appears to be in good shape, said Augusto Lopez-Claros, Chief Economist and Director, Global Competitiveness Programme, World Economic Forum. Strong growth has created a domestic import demand that has enabled China to enter the global economy without creating the kind of severe trade imbalances Japan did in the 1980s.
But China needs to undertake major improvements to remove constraints to its future competitiveness, Lopez-Claros said. China needs to strengthen its property rights and the independence of its judiciary. Crime and corruption stand alongside poor accounting standards and weak financial institutions as impediments that should be removed. And while China is a major manufacturer of high-tech products, he said, it needs to accelerate its own adoption of technology.
Whatever the government does will have to go beyond simple monetary policy measures, said Lopez-Claros. The interest rate mechanisms under government control are inadequate in reining in credit growth and the economy. So in addition to these levers, officials should strive to overhaul institutions, he said, boosting efficiency and reducing barriers to entry in the business sector.
China's government, Lopez-Claros said, needs to stop running fiscal deficits and instead save money to invest in a public pension scheme that can cushion the impact of rising unemployment and massive layoffs as state-owned enterprises restructure. It should reform the financial sector to reduce the dominance of state-owned banks that fail to charge interest rates that reflect the real capital risks of lending, he commented.
China enjoys great competitiveness in certain areas such as light industry, said Andy Xie Guozhong, Managing Director, Morgan Stanley Dean Witter Asia, Hong Kong SAR. But in some ways, China is reminiscent of Indonesia before the Asian financial crisis, riddled with inefficiencies that sap its overall competitiveness and that derive from deep and potentially intractable social and systemic problems.
China has not demonstrated the ability to create the specialized divisions of labour that characterize Japan's manufacturing success, Xie observed, nor has it mastered the intangible added value that imbues European goods with "luxury", nor the organizational prowess that makes Anglo-Saxon economies the masters of logistics, he said. As a result, China has yet to create global companies or brands. "If you want to create global brands, you must be able to manage a large organization that can innovate and achieve superior quality," Xie said. For China, he said, "it's an uphill struggle."
Providing enough jobs for its people represent a mammoth task for China's government, said Phillip Beniac, Vice-President, Asia Pacific, SAS Institute, Australia. The government will need to implement policies that encourage industries to use resources more efficiently if China is to become a global competitor.
"This is going to be the world's most intensely competitive battleground for enterprises," said John W. Egan, Vice-President, Global Services and Strategy, and Managing Director, Greater China, A.T. Kearney, USA. To compete with foreign companies - even in their own market - Chinese companies need to see improvement in several areas. Logistics costs, for example, remain a greater relative proportion of total costs in China than in a typical Western economy. China's services sector lags India's and needs improvement. More importantly, Chinese companies need to master the art of marketing, a feat they might be able to accomplish more quickly by acquiring companies overseas that already have marketing skills.
Synthesis: China in the Global Economic Community
13.09.2004
China Business Summit 2004
The globalization of China and its emergence as a major political and economic player in the world offers enormous opportunities for Chinese enterprises and foreign companies, business leaders participating in the closing plenary agreed.
"There is a consolidation of the development process in China," said session Chair José María Figueres, Chief Executive Officer, World Economic Forum. "Countries that can extract value from globalization move forward. China is one such country. China has a strategy - to move from US$ 1 trillion GDP to US$ 4 trillion in 20 years. But there are caveats and tremendous challenges." Among them: constraints on growth due to limited energy resources, growing disparities between urban and rural areas, mounting pressures posed on society by an ageing population, and the need to sensibly manage the country’s political development.
"The China factor in global affairs is now fully recognized," said Victor L. L. Chu, Chairman and Chief Executive Officer, First Eastern Investment Group, Hong Kong SAR. "It is in forums such as this that we can engage people from China and the world and can increase our understanding of each other - and of how this ‘elephant’ [China] which has been running at 100 miles an hour for the last 15 years will affect the world."
Offering his assessment of China’s prospects, Naoyuki Akikusa, Chairman and Representative Director, Fujitsu, Japan, a Co-Chair of the China Business Summit 2004, said that the confidence he perceives among Chinese people will be a source of further strength as the economy progresses. While China may not yet be able to produce top-quality high-value-added products, it will eventually be able to do so.
Liu Yonghao, Chairman, New Hope Group, People's Republic of China, reckoned that for Chinese companies to be competitive internationally, they must not just become big, but must also be strong and powerful. He stressed the growing importance of the private sector and the emergence of Chinese entrepreneurs.
Stelios Haji-Ioannou, Chairman, EasyGroup, United Kingdom, noted China’s ambitions to become, by 2020, the fourth largest source of tourists in the world and the top tourist destination. He hailed the government’s willingness to launch an open-skies trial in Hainan. But he also pointed out potential constraints on the development of tourism in China, such as the lack of budget hotels, as well as other barriers to the growth of the travel trade including visa requirements on outbound Chinese travellers and the 17% VAT levied on small or regional jets aimed at protecting the domestic aviation industry.
China is increasingly involved in high-level international groups such as the G-7 deputy finance ministers’ meetings and the G-8 consultations, Chu observed. By 2020, it is possible that China would be part of a G-3 group that would also include the US and Europe or a G-5, with the addition of India and Japan. "If that is the case, we have to make sure that China will play its role responsibly, openly and fairly," Chu remarked. "We have a lot of work to do."
During the discussion period, one participant questioned whether Chinese enterprises would be able to compete in the world economy. Hsu Ta-Lin, Chairman, H&Q Asia Pacific, USA, stressed the importance for China to tap its "real resources" - its brain power - and to unleash capital to promote entrepreneurship. Haji-Ioannou, who calls himself a "serial entrepreneur", said that China would benefit from having a large domestic market. The question is whether its people have the drive to become rich and whether Chinese culture celebrates success and tolerates failure.
Soft landing, still a tough job
2004-09-03 10:11
China's task of managing its economy to a soft landing remains at a critical juncture and any let-up in policy restraint may risk losing ground already gained in the campaign, the central bank warned yesterday.
Similar rhetoric by the bank last month cautioning about the difficulty in macro management refuelled speculation about a widely-anticipated interest rate rise, but analysts said yesterday they believed the bank was not hinting at any immediate action.
The market has been anxiously awaiting signs of the central bank's judgment on the economy, especially after frenzied fixed investment and loan growth showed a faster-than-expected slowing down during the past couple of months.
"Macro management has achieved initial results, but there may be a rebound if our efforts are loosened up to any extent," said Zhou Xiaochuan, governor of the People's Bank of China (PBOC).
Fixed investment growth may accelerate again, he said, given the massive scale of projects under construction, and enthusiasm for investment among businesses and local governments across the country "remains high."
Base money is still growing rapidly as the central bank continues to absorb inflows of foreign currency, complicating its monetary policy operations, Zhou said.
"I feel that the central bank is just responding to calls for easing credit curbs instead of hinting at a greater possibility of an interest rate hike," said Wang Yuanhong, a senior analyst with the State Information Centre.
Economists have been cautioning recently about the prospect of an abrupt slowdown in investment and credit growth bringing the economy to a hard landing. Others believe that cooling down the economy remains the more urgent task currently.
China has taken a raft of measures, including raising bank reserve requirements and administrative measures such as imposing strict land controls and credit curbs, to contain fast growth in fixed investment and money supply that started in the latter half of last year.
The frenzied investment and loan growth raised worries about the economy overheating.
Both fixed investment and bank loans slowed down subsequently, but at a faster pace than expected. Fixed investment growth registered only 18.3 per cent in May, which compared to more than 50 per cent in the first two months of the year, while money supply growth slid to 15.3 per cent in May from above 20 per cent earlier this year.
But analysts have warned the investment and credit growth may rebound should the administrative tightening slacken, and have called for more market-oriented methods.
Investment growth climbed again in July, registering 31.5 per cent, as estimated by investment bank Goldman Sachs. Steel prices, a major concern fuelling worries about overheating, have clawed upward.
The US Federal Reserve's two interest rate rises this year did little to stop the inflow of foreign currencies, a senior PBOC official said last month, dashing hopes higher overseas interest rates would alleviate the pressure on the central bank to mop up excessive liquidity generated when purchasing dollars to keep the yuan stable.
"The likelihood of a rebound is out there at this point in time," Wang said. "But with the central bank watching the situation now, the possibility has become dim."
On a related front, the China Banking Regulatory Commission (CBRC) yesterday released long-anticipated guidelines on commercial banks' lending risks in the fast-growing real estate market, a key sector the State intends to slow down as part of its macro management efforts.
The guidelines detail risk prevention measures for commercial banks regarding their housing loans, and require individual borrowers' monthly repayments to be no more than half of their monthly income.
Chinese commercial banks' housing loans have been expanding since 1997 as the real estate market experienced a boom. But "since real estate developers rely mainly on bank loans, the banks' non-performing assets may rise considerably should the market reverse its course," said a CBRC spokesman.
(Source:China Daily)
Central bank to ensure 'soft landing'
2004-07-26 09:25
China's central bank will maintain its cautious stance on further monetary policy moves to ensure that the nation's fast-growing economy enjoys a "soft landing," a leading official said.
People's Bank of China Vice-Governor Guo Shuqing said that macroeconomic measures already taken have "had quite some effect," meaning that further action, such as an interest rate rise, "should be considered prudently."
"We need some further observation," Guo told a seminar organized by the State Council's Development Research Centre (DRC) on Saturday.
"But the central bank will remain especially vigilant about price increases," pledged Guo, whose remarks came as speculation ran high about a possible rate increase.
This comes as the nation's consumer price index (CPI), the key barometer for inflation, topped 5 per cent last month.
Central bankers had earlier said that the bank would not turn a blind eye when the CPI reached the 5-6 per cent range.
The index emerged from negative territory only last year, following months of deflationary pressure. But it increased rapidly in recent months, prompting inflationary concerns at a time of sizzling investment and credit growth.
China's fixed investment and loans kept soaring since the middle of last year, pushing up industrial prices and stretching supplies of energy and transportation capacity.
But this frenzied growth eased off significantly in June, something which was cheered by many as a sign that the State's tightening measures are having an impact.
The government has taken both monetary policy moves, mainly three increases in bank reserve requirements, and administrative measures such as price curbs and strict land policies to reduce fixed investment and credit growth.
But the economy is still sending only mixed signals about the future direction of macroeconomic policy.
"Monetary performance has seen obvious changes," Guo said, citing the fall last month in money supply and new loans growth, as well as stabilizing interest rates on the money market.
But liquidity remains loose in the banking system, with commercial banks' excess reserves, which they set aside for payment needs, standing at 3.75 per cent of their total deposits at the end of last month, he said. That was higher than the level in September last year, when the central bank announced the first of the three increases in required reserves aimed at restricting banks' lending capacities.
"It (excess bank reserve levels) can only be higher today," Guo said.
What is more important, the official noted, is the possibility of fixed investment and credit growth re-accelerating "in new forms" once administrative controls are relaxed.
Guo's concern was shared by Yao Jingyuan, chief economist of the National Bureau of Statistics (NBS). "What is unique about administrative measures is that they yield instant results, but the results tend not to last long," he told the seminar.
And businesses may soon be requesting more loans from banks to fund their expansion, using the excuse of alleviating a working capital shortage, Guo said.
Analysts said the government-ordered slowdown in new loans in June was mainly due to fewer short-term working capital loans, constraining liquidity at many small and medium-sized enterprises.
Economists are still divided over the prospects for inflation in the coming months and the necessity of an immediate rate increase.
Zhang Zhuoyuan, a senior economist at the Chinese Academy of Social Sciences, predicted full-year CPI growth would be in the 4-5 per cent range, and a rate rise would be "hardly avoidable."
"Prices are climbing, with the growth rate higher than the one-year deposit rate. Price increases for raw material and industrial goods have also surpassed the one-year lending rate," he said. "That has clearly created a negative real interest rate environment, which makes an interest rate rise inevitable."
Some seminar participants ruled out the possibility of rampant inflation, insisting the current price level remains manageable.
"Our basic judgment is that current inflationary pressures are acceptable and controllable," said Zhang Junkuo, director of the Market Economy Research Institute under the DRC.
China's CPI rose by 3.6 per cent in the first half of this year, but the increases were 80 per cent driven by rises in grain and food prices, the NBS said. That means the increase in core CPI has been "insignificant," Zhang said.
Although CPI growth is likely to keep above 5 per cent for the third quarter, it is expected to subside significantly in the fourth quarter due to the high price base a year earlier and anticipated increases in grain output.
"For the entire year, 4 per cent should be achievable," Zhang said.
Source:China Daily
China's economy expected to achieve soft landing
2004-07-12
Thanks to a series of timely policies and measures by the government, China is bringing its economy to a soft landing, as over-heated sectors gradually cool off without causing big swings in the overall economic growth.
Fan Gang, a leading Chinese economist, made the comment in a recent interview with Xinhua.
Statistics during the first five months this year showed the growth rate of fixed asset investment as well as raw material import has been dropping, and the price soaring of capital goods has been checked, he said.
Investments in fixed assets grew by 18.3 percent year-on-year in May, a significant drop from the 34.7 percent growth rate in April, according to official statistics.
"This evidence demonstrates that the macro-control policies aretaking effect, and an economic soft landing is expected to be fulfilled," Fan said.
The Chinese government has already noticed the overheating signs as early as last summer when the fight against SARS was basically concluded, he said, mentioning the central bank's move to raise the deposit reserve requirement for banks and tighten scrutiny of loans to the real estate development sector since last August.
"The Chinese government's quick response has made it easier to adjust the overheating sectors of the economy," Fan said, adding that the market systems and experienced entrepreneurs also play an important role.
Some economic analysts here said the Chinese central government had been following a macro-control route like this -- Curbing blind investment and low-grade capacity expansion in certain overheated sectors and rectifying the land market first, which is done through tightening credit and land control, then straightening out investments in fixed assets and strictly cracking down on cases of transgressions in relevant sectors, and meanwhile, adopting a series of measures to beef up agriculture and weak links of the economy.
"It is still too early to say that the macro-control goal has been achieved," Fan said.
The investment scale is still too large, and the power and transportation shortage problems have not been resolved, he said.
Due to inadequate electricity supply capacity, 24 provinces, autonomous regions and municipalities have experienced brownouts so far this year. Zhao Xizheng, general manager of the State PowerGrid Company, said China may face the most severe power shortage since the 1980s this summer, with a demand of 30 million kilowattsmore than supply.
"Relevant macro-control policies still need to be further implemented to achieve the soft landing goal," Fan said.
"We should draw important lessons from this round of economic overheating." Citing as an example, he said, when the capital goods prices begin to rocket, it's time to take swift action. "If we wait until the consumer goods start to soar, it's too late to take macro-control measures."
Source:Xinhuanet
Soft landing if inflation is checked: Moody's
2004-06-24
China will most likely have a soft landing provided the Chinese Government is successful at containing inflation below 5 per cent, Moody's Investors Service said yesterday.
"If inflation does build up and the inflation rate goes higher than 5 per cent, the authorities will have to slam on the brakes harder, of course. When they do that, soft landing becomes a bit rougher. It's very hard to quantify, but that's our basic outlook," said Thomas J. Byrne, vice president and senior credit officer at Moody's, who co-chaired a news conference.
He also said that the overheating in the mainland economy is not systemic because the current situation is different to the early 1990s; and that it is prevalent only in certain industries.
"The authorities have drawn a line and that's the 5-per-cent inflation-rate level, and once CPI moves up to that level, they will need to take even more drastic measures. And these will have to be administrative measures, because the Chinese economy is not sophisticated or developed enough to use traditional monetary policy tools to stamp out overheating," he said.
In May, the consumer price index grew 4.4 per cent on the mainland, the fastest in seven years, as prices for grain and fuel surged.
GDP growth would slow to 7-8 per cent next year and a hard landing would mean it would be only in the 2-3 per cent range, Byrne said.
And even if China has a hard landing, it will not have any credit implications for its A2 rating. "China's sovereign credit-worthiness is very jealously guarded by the Ministry of Finance," he said.
He cited the GITIC bankruptcy case in 1999 which served as a signal to foreign creditors that not all entities in China, public or private, will receive support from Beijing.
"This limits moral hazards in terms of international lending and borrowing for China, and this is one way China can protect its foreign exchange reserves and avoid going into an external debt crisis," he said.
Meanwhile, the budget deficit faced by the Hong Kong government is not expected to have any immediate credit implications on its current foreign currency rating of A1 assigned, Moody's said.
"We believe the Hong Kong government remains fairly strong in its position, despite running into budget deficits for the past few years, and will continue to for the next few years," said Steven A. Hess, vice president and senior credit officer at Moody's.
He does not see the current situation as a major concern and even predicts that the budget deficit will be eliminated sooner that the 2008-09 timeline stated by the government.
Hong Kong posted a HK$40.1-billion budget deficit for the 2003/2004 fiscal year, lower than forecasts thanks to the economic recovery late last year.
However, Hess did raise his concerns on one of the most talked-about topics - the Hong Kong government needing to broaden its sources of revenue.
"The Hong Kong government is too dependent on just a few rather volatile revenue sources like land sales and investment incomes. These are very volatile," he said.
In March, Financial Secretary Henry Tang had said in his annual budget speech that he would look at the possibility of introducing a GST (Goods & Service Tax), in a bid to broaden and stabilize its revenue base.
Because of its pegged exchange rate to the US dollar, Hess said that Hong Kong would probably be one place in Asia that would feel the impact of the proposed US interest rate hike more than other economies in the region.
However, he added that this will not come as a shock to the market as it has been expecting interest rates to rise.
He commented that the increasing oil prices would not significantly affect Hong Kong because the territory does not have a manufacturing sector, although "higher transportation could affect trade somewhat".
Source:China Daily
Premier: China confident of economic soft landing
2004-06-22
China is fully confident of achieving the goal of 'soft landing' of its economy, Chinese Premier Wen Jiabao said in Qingdao, Shandong Province Tuesday.
The premier made this remark when addressing the opening ceremony of the third foreign ministers' meeting of the Asia Cooperation Dialogue (ACD).
In his speech, Wen talked about China's macro economic performance, which has come to the attention of the international community.
"I can tell you responsibly that China's overall economic situation is good," he said.
Since last August, in response to some outstanding contradictions and problems in economic performance, the Chinese government has taken a series of prompt and resolute macro control measures. All these measures "have already yielded noticeable results, and China's national economy has maintained steady and rapid growth," he said.
Source:Xinhuanet
China's economy on path to soft landing
June 18, 2004
As over-heated sectors gradually cool off without causing big swings in the overall economic growth,China is bringing its economy to a soft landing.
Investments in fixed assets grew by 18.3 percent year-on-year in May, a significant drop from the 34.7 percent growth rate in April. Meanwhile, the growth rate of industrial production, money supply, prices of capital goods, and consumer price index also subsided to varying extents.
The electrolytic aluminum sector, one of the identified prominent overheated sectors, is also cooling down.
"Since last August, no enterprises have unveiled plans to design and build new electrolytic aluminum projects. Construction of certain projects has been stopped or suspended," said an official from the China Non-ferrous Metals Industry Association.
Steel prices are coming down swiftly from their historical highlevels to the normal levels, said Liu Jie, general manager of Anshan Iron and Steel Company in northeast China's Province.
"Still, the current prices remain above production cost. There are no widespread closedowns or bankruptcies as a result of the price change," Liu said.
In this process, the Chinese economy has maintained fast growthmomentum.
Industrial output grew 17.5 percent year on year to 431 billion yuan (52.5 billion US dollars) in May. Fiscal revenue, foreign exchange reserves, foreign investment, people's income andmarket sales continued to rise.
Economic analysts here said the Chinese central government had been following a macro-control route like this: curb blind investment and low-grade capacity expansion in certain overheated sectors and rectify the land market first, which is done through tightening credit and land control, straightening out investments in fixed assets and strictly cracking down on cases of transgressions in relevant sectors; meanwhile, adopt a series of measures to beef up agriculture and weak links of the economy.
It's due to the synergy of these measures that macro-control took effect swiftly, the sound economic situation in general was maintained and the economy was proceeding in the expected directions, according to the analysts.
Wednesday's executive meeting of the State Council, China's cabinet, held that the current economic situation is sound in general. The government's macro-economic control measures have gained remarkable achievements.
The meeting also pointed out major existing problems, like the excessively large investment scale and the gap between supply and demand of coal, electricity, oil and transporting capacity, and held that macro-control must not let up.
Economic analysts here defined these problems as follows:
Although lower than levels in 2003, the growth rate of investment in the sectors of iron and steel, cement and aluminum remained at high levels.
By the end of April, inventory of coal had dropped to 98 million tons, the lowest point in 20 years.
Due to inadequate electricity supply capacity, 24 provinces, autonomous regions and municipalities have experienced brownouts so far this year. Zhao Xizheng, general manager of the State PowerGrid Company, said China may face the most severe power shortage since the 1980s this summer, with a gap of 30 million kilowatts between demand and supply.
Railway freight capacity falls far short of demand. Due to limited capacity, railway departments could meet only 35 percent of the requests for freight carriages in the first five months.
Experts said fundamentally, the problems in China's economic development can be classified into structural problems, institutional problems and growth mode problems.
The relationship between the primary, secondary and tertiary industries is inharmonious. China's primary industry grew 11.7 percent in the first five months, the second industry 47.8 percentand the third industry 27.7 percent.
The industrial product mix is irrational. Although it has become a leading steel producer in the world, China imported 19 million tons of high-grade steel products in 2003.
In the economic system, some drawbacks of the planned economy still exist.
There remains much to do in separating operations of enterprises from the direct administration of the government, reforming the corporate governance mechanism and improving the market mechanism.
In the economic growth mode, China remains after the extensive mode that features high investment and high consumption but low yield and low benefits.
Wednesday's executive meeting of the State Council called for continuous efforts in the following areas in the present stage:
-- Curb the fast growth of bank loans;
-- Step up control over land management;
-- Strengthen the management of grain market;
-- Be well prepared for fighting floods and droughts;
-- Implement measures to deal with power shortage in summer;
-- Increase assistance to agriculture, water conservancy, environment and social undertakings;
-- Deal with the issues of employment and re-employment; and
-- Increase efforts to watch over the issues of food security and industrial safety.
Experts said that if handled properly, it's possible for the Chinese economy to achieve a soft landing. That would lay a solid foundation for steady and relatively fast economic growth in the next year and the following years.
Source: Xinhua
Market forces a better choice for soft landing
2004-06-16
Latest statistics show the central authorities' tough measures to rein in excessive investment growth are working.
But to create a soft landing while maintaining the vitality of the national economy, the authorities need to better utilize market forces when making macroeconomic adjustments.
The country's industrial growth, though still high, dipped by 1.6 percentage points over the previous month to 17.5 per cent in May.
Yet, the more telling story is the drastic slowdown of fixed investment growth.
In the first quarter of this year, the country's fixed investment rocketed by 47.8 per cent over the same period last year. Such a huge growth rate spurred policy-makers into aggressive action against the frenzy of investment, particularly in several "overheated" industries like the steel sector.
Now, the monthly growth of fixed investment has been reduced to 18.3 per cent, bringing down the aggregate growth in the first five months to 34.8 per cent.
Undoubtedly, the swift and timely control of the steaming investment growth - the country's most important growth engine which risks bursting - justifies those tough measures including some administrative intervention.
However, administrative measures can only hold back zealous investors for a while. It will not persuade them to give up the projects that they consider profitable.
Market tools like interest rates can be used to redefine the profitability of those projects temporarily favoured by eager investors. A flexible interest rate regime can be used to discourage a large number of business people from rashly jumping onto the investment bandwagon.
China's consumer prices rose by a seven-year high of 4.4 per cent year-on-year last month.
It is high time that the central bank turned to the key instrument in its toolbox.
In the past, there were fears that the enlarged interest rate gap resulting from China's interest rate hikes would attract more foreign capital, fuelling revaluation speculation about the Chinese currency as well as further increasing the country's superfluous money supply.
But as the US Federal Reserve voiced its intention recently to raise interest rates faster than many investors expected, China's central bank needs to act in a more resolute manner.
No matter how small the margin, the renminbi interest rate hike will drive home the message that the days of "cheap money" are over - and the feverish investment will subside.
Source:China Daily
China to achieve a soft landing - finance minister
2004-05-16 15:36
China reaffirmed on Saturday its commitment to maintaining its exchange rate, saying the current level was vital for economic growth for itself and the rest of Asia.
Finance Minister Jin Renqing said he was confident China's economy would achieve a soft landing, slowing to a sustainable pace without falling into the serious downturn that investors globally are worried about.
"We are confident that we have the ability to achieve a soft landing for our economy and to sustain a smooth and rapid pace of growth," the minister told reporters at a meeting of the Asian Development Bank on the South Korean resort island of Cheju.
"As such, preserving the basic stability of the yuan's exchange rate is vital for the future stable growth of China and also for Asia's economy as a whole."
China keeps its currency, the yuan, in a tiny band around 8.28 per dollar, a level that has attracted criticism from the United States and other countries as too low and giving Chinese exporters an unfair advantage.
Investors have speculated that the authorities will lift the value of the yuan, partly because doing so would help the country with its big economic problem -- a powerful boom that threatens to turn to a bust.
It has implemented an array of measures to restrain sectors of the economy that are most experiencing over-investment, such as steel and automobiles, but has resisted raising the exchange rate or interest rates.
Asked if China was considering raising interest rates, Jin said: "Inflation is still under control. The 2.8 percent rise in the CPI that we saw in the first quarter was mainly due to expensive raw materials but the prices of most consumer goods did not rise.
"Of course, the measures that we have undertaken will take time to produce results. But we are starting to see some results. Exports and fixed-asset investment are starting to slow."
Jin cited a drop in steel prices as further evidence that cooling measures were taking effect.
Consumer prices were 2.8 percent higher in the first quarter than a year earlier.
Most countries use interest rates to control demand within their economies, but China has left its official one-year lending rate at 5.31 percent because, analysts say, anything more could kill struggling state firms and also attract more foreign money into the economy, propelling it faster.
Source:China Daily
China's economy shows signs of soft landing
2004-05-22
The world's 6th biggest economy is gradually beginning to respond to repeated attempts by the Chinese government to tap the brakes on excess investment.
Official figures say investment in construction and factory equipment, contributing greatly to the country's overheating economy, slowed its pace -- down 8.8 percentage points from March to an annualized growth of 34.7 percent in April.
The increase of investment in property was declining apparently in tandem with the slower growth of bank lending, while construction of new projects was initially reined in, said the National Bureau of Statistics.
Liu Shucheng, director of the economic research institute of the Chinese Academy of Social Sciences, a think-tank for the government, predicted China's economic expansion would be successfully lowered to around 8.5 percent this year from 9.1 percent in 2003.
China has set a target of 7 percent for 2004's economic growth,but the first-quarter increase, driven largely by investment, soared a revised 9.8 percent.
Macro-economic control and its effects could be felt step by step and help curb to some extent the overheating in a raft of industries, though investment would, overall, still grow on a fasttrack in the whole year, Liu told Xinhua.
He pointed out that "the ongoing macro-control was virtually a kind of adjustment targeting some runaway industries, over a climbing period in a new round of economic cycle."
China's central bank has ordered -- three times in a row since last September -- commercial banks to keep more money in reserve instead of lending it and allowed them to raise lending rates -- up to 1.7 times benchmark rates -- in a bid to curb loans.
The Ministry of Commerce has reduced tax rebates that enterprises can get from their export business. What's more, the State Council, China's cabinet, has raised the demand for capital-to-cost ratios for projects in the sectors of steel, aluminum, cement and real estate.
Very importantly, steel and aluminum prices responded by plummeting down, while coal output and electricity generation, two areas hampered by supply bottlenecks, stepped up pace.
In April, China's trade deficit widened to 2.26 billion US dollars from 540 million in March, as higher demand for raw materials imports and oil costs padded the country's monthly import bill, customs figures show.
And value-added industrial output slowed for the third consecutive month in April to 19.1 percent growth from a year earlier.
One of the leaders in providing widely recognized financial data and analytical research and investments, Standard & Poor's Ratings Services recently said it saw no immediate need to revise the positive outlook on its sovereign ratings on China.
It said while a hard landing could not be ruled out, a soft landing was the more likely outcome for the country's high-flying,but apparently earthbound, economy.
The view was echoed by Stephen S. Roach, chief economist of Morgan Stanley, who expressed his confidence that China could avoid a hard landing since the leadership has accumulated much experience arising from a number of macro-controls in the past.
In the eyes of foreign investors, China's market remains a "bigcake": actual foreign direct investment rose 10.07 percent from a year earlier in the first four months of 2004, up from a rise of 7.49 percent in the first quarter.
China's economic policy makers are also encouraged by sustainedincreases of enterprises' profits and the nation's fiscal income, a narrowing gap in the growth rates of urban and rural residents' income, as well as a quickly recovering world economy.
A recent central bank report noted that the economy, however, was still beleagued by some "more apparent contradictions and worsening problems", citing that inflation, despite being modest, rose to 3.8 percent in April -- the highest level in seven years --on the back of soaring food prices, compared with the 3 percent annual target for 2004.
The State Development and Reform Commission has required local provinces to suspend projects that might raise consumer prices when inflation hits 1 percent a month or a 4 percent annual rate over a three-month period.
The People's Bank said its prudent monetary policy stance will be tilted towards "moderate stringency" in the near term, vowing to take measures to mop up liquidity in the country's financial system to prevent loan growth which was still in the fast lane, while promising no "one-size-fits-all cut" in credit and loan extension lest the economy sees a boom and bust.
The central bank noted its annual targets -- letting both the broad money M2 and narrow money M1 grow 17 percent and commercial banks' lending add 2.6 trillion yuan (313.3 billion dollars) -- could be reached.
Additionally, a joint statement by three State Council departments said industries earmarked for belt-tightening would be expanded to machinery, petrochemicals, light industry, textile, pharmaceuticals and publishing.
The market keeps speculating on whether the central bank would raise interest rates to further cool the economy. "It depends on the data in the future. We need to observe them," said Governor Zhou Xiaochuan of the bank on Wednesday.
Source:Xinhuanet
