Liu Shijing, Lu Zhongyuan, Zhang Liqun & Li Jianwei

Due to the impact of the Asian financial crisis and as a result of the pressure of domestic deflation, China’s economic growth fell for a time after 1998 and became more dependent on expansionary macroeconomic policies. Thanks to the subsequent efforts in expanding domestic demand, deepening reform and opening up and accelerating economic restructuring as well as other major policy measures, the demand of consumption and investment has picked up in recent years. As a result, the economy’s self-growth (endogenous and market-oriented growth) mechanism is getting stronger and its dependence on expansionary policies is getting less intense. Next year, China needs to maintain the continuity and stability of macroeconomic policies so as to consolidate the economy’s self-growth foundation and make the performance of the national economy more adaptable to the new internal and external economic environment.

I. Striking Features of Current Economic Performance

Since the beginning of this year, investment and export have posted a robust growth, consumption has been brisk and industrial upgrading has been faster, all of which have constituted the main driving factors for economic growth. A comprehensive analysis of the economic performance in the first three quarters and a quantitative projection by using the monthly macroeconomic measuring model indicate that the growth of the gross domestic product for the whole year may reach 7.7-7.8 percent, which will be higher than the level in 2001. The economic performance has demonstrated a fine trend of steady growth.

(1) Consumption demand has been brisk and investment’s self-growth capacity has been promoted

Consumption has maintained the momentum of steady growth that has become faster in recent years. In the first three quarters, total retail of consumer goods rose by 8.7 percent over the same period a year earlier. If price factor was deducted, the real growth was 10.2 percent, more or less at the same level of the previous corresponding period. From 1998 to 2001, the total retail of consumer goods at comparable prices rose by 10.5 percent annually on average, which was only 0.2 percentage points lower than the level of the 1992-1997 period. Compared with the GDP growth which was 3.9 percentage points lower (down from 11.5 percent to 7.6 percent) during the same period, the real growth of consumption demand was relatively stable. In the meantime, the upgrading of urban and rural residents’ consumption structure has gained steam. Compared with the 1992-1997 period, the annual decline rates of the Engel coefficient for urban and rural residents respectively rose from 1.3 percentage points to 2.2 percentage points and from 0.5 percentage points to 1.83 percentage points during the 1998-2001 period. While a pretty fast decline was posted for the proportion of food spending, a rise of similar intensity was posted for the spending of transportation, housing, medical care, education and cultural entertainment. In the end, the pulling effect of consumption on industrial upgrading and economic growth became stronger.

The growth rate of fixed assets investment has visibly picked up in recent years. During the 1999-2001 period, the growth rate bounced up gradually from 5.1 percent to 10.3 percent and further to 13.1 percent. In the first three quarters of this year, the total fixed assets investment rose by 21.8 percent, or 6 percentage points higher, over the same period of the previous year. The rapid investment growth was due to the pull of construction treasury bond, but more importantly because of the stronger self-growth ability of investment.

First, private investment intensified. From 1998 to 2001, the average annual growth rate of all domestic private investment, including the joint-stock economic sector, the collective economic sector, the private economic sector and the cooperative economic sector, was as high as 20.4 percent, 11.8 percent, 22.7 percent and 20.3 percent. In particular, the investment growth of the joint-stock economic sector was the fastest. In the meantime, the investment growth of the state-owned economic sector dropped gradually from 17.4 percent to 3.8 percent, 3.5 percent and 6.7 percent. The growth rate of domestic private investment was not only higher than that of the state-owned economic sector, but also faster than that of all social investment. At present, the proportion of private investment in all social investment is close to that of the investment of the state-owned economic sector. In 1997, the proportions of the investments made by the state-owned economic sector, the domestic private economic sector and the foreigners and those from Hong Kong, Macao and Taiwan were respectively 52.5 percent, 35.9 percent and 11.6 percent. In 2001, however, the proportions became 47.3 percent, 44.6 percent and 8.1 percent. The proportion of investment by the private economic sector (14.6 percent) exceeded that of the collective economic sector (14.2 percent).

Second, the dependence of the growth of all social investment on government stimulation policies such as direct investment has gradually become lesser. From 1999 to 2001, the amount of construction treasury bond had been stabilized at 150 billion yuan a year. During this period, the proportion of treasury bond investment (including construction treasury bond and the investment of all supporting funds) in all social investment fell from 8.1 percent to 6.5 percent, and the growth of budgetary investment declined from 54.7 percent to 13.2 percent. Since 2000, the downward adjustment of interest rates has also been less frequent and less drastic compared with that of 1998 and 1999. In terms of the sources of investment funds in the first eight months of this year, the growth of all investment funds could still be as high as 25.7 percent even if the treasury bond investment remained at zero point growth. The growth rate was 1.3 percentage points higher than that in the previous corresponding period. Our quantitative analysis of the effect of macro regulatory policies in recent years indicates that in the first three quarters of 2000, 2001 and 2002, the macro policies aimed at stimulating investment respectively helped push investment growth by 3.4, 3.1 and 5.1 percentage points. After the contributions of these policies were deducted, investment growth in the first three quarters of the three years were respectively 8.21 percent, 11.65 percent and 18.15 percent, which still represented a very strong growth. This is an indication that the contributions to investment growth by corporate revenue, price, expectation, self-raised fund, foreign fund utilization and other market factors have been continuously on the rise.

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