Wu Jinglian

In the first half of the year, China’s GDP grew by 8.2 per cent, the total volume of retail sales in social consumption goods rose by 10.1 per cent, fixed asset investment in the society as a whole swelled by 11 per cent, export increased by 38.3 per cent, and the consumption price index went up by 0.1 per cent. There is no significant disagreement in the economics circle at present on the fact that a favourable change has taken place in the economic development of China, as can be seen from the warming up of the market and pick-up of the economic growth after hitting the bottom. If we mention any disagreement, it centers around the analysis of the causes and extents of the favourable turn. As accurate judgement on the situation is a precondition for correct decision-making, it is of great significance to clarify the issues involved in the discussion.

I. Analysis of the causes of the favourable turn

A typical viewpoint held by the economics circle at present is that the fundamental cause of the favourable turn of the economic situation lies in the adoption of an active financial policy by the Chinese Government and its efforts to expand domestic demand since 1998. However, since the role of the expansive financial policy has been limited so far to certain improvement of the insufficient demand and the basis is still very weak, estimation of the situation should not be too optimistic. Whether the national economy will maintain its upward trend of development in the future and whether a turning point has really taken shape will be determined by the continuous government efforts in implementing its active financial policy.

In my opinion, owing the favourable turn of the economic situation merely to the stimulating role of the expansive financial policy does not tell the whole story. As a matter of fact, the Chinese government adopted a "two-hand" policy after the eruption of the East Asian economic crisis, namely, to adopt an active financial policy to expand domestic demand on one hand, and promote reform of state-owned enterprises and the development of medium and small-sized enterprises on the other. The favourable turn of the economic situation on all fronts in the first half of the year has been exactly a result of the combined role of this "two-hand" policy.

As early as the East Asian economic crisis broke out and the Chinese market slackened, some economists pointed out that we should adopt not only the traditional "Keynesian policy for expanding domestic demand", but also the "policy of revitalizing enterprises advocated by the supply school in the United States" in the early 1980s. In the actual economic work, the Chinese government implemented policies in these two aspects. First of all, resolute measures have been taken to issue hundreds of billions of yuan of State bonds each year since 1998 to raise funds for infrastructure construction and other fields. This has rapidly curbed the falling investment under the circumstance of shrinking consumption and export demand and month-to-month slow-down of economic growth, and gradually changed people’s gloomy expectation for the future. At the same time, the government adopted a series of measures to reduce the difficulties of enterprises and stimulate the enthusiasm of social investment. These measures include publicity and implementation of the principle of common development of economies of various kinds of ownership promulgated at the 15th National Congress of the Communist Party of China, improvement of credit services and establishment of credit guarantee funds for medium and small-sized enterprises, large-scale replenishment of the capital fund of banks and proper disposal of their bad assets, empowering industrial enterprises (including non-governmental enterprises) to handle export business on their own accord, loosening administrative control on micro economic activities of enterprises, cancelling investment-regulating taxes, and accelerating restructure of the petrochemical, telecommunications, and other key industries.

Viewed superficially, the effect of these measures designed to invigorate enterprises and revitalize the national economy has not produced results as quickly and noticeably as financial methods have stimulated the growth of demand. However, these measures laid a solid foundation for the steady pick-up of the economy. At present, GDP growth in the coastal areas in Southeast China, Zhejiang, Guangdong, Jiangsu and some other provinces in particular, has reached two digits, social investment has bounced back rapidly, and the employment situation has been good. These areas have become pacesetters and played a leading role in the improvement of the national economy. Their excellent achievements have been exactly the result of implementing the policy measures mentioned above. As a matter of fact and according to my personal observation, it is likely that these areas have underestimated the strong growth of their production, investment and export due to the defects in the statistical system in China and the reluctance of some areas to "uncover their wealth". According to a report by the Zhejiang Provincial Statistical Bureau, for instance, the GDP of the province grew by 10.6 per cent in the first six months of this year over the same period last year, and the value added of its industries went up by 12 per cent. During the same period, its social consumption of electricity rose by 20.7 per cent, and electricity consumption by its industries soared by 22.8 per cent. Such a big elasticity coefficient of electricity consumption is beyond imagination. What calls for special attention is that the southern part of Jiangsu Province, which used to take the lead in starting up the economy several times in depression, but put up a poor performance in economic development in recent years, now has seen a sharp rise in production, brisk investment, and a comeback of overall vitality since the start of this year after undergoing restructuring last year.

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