Investment Growth Propels Chinese Economy: Analysis

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Last updated at: (Beijing Time) Thursday, June 20, 2002

Investment Growth Propels Chinese Economy: Analysis

The continued rapid growth of China's economy is being driven by investment as exports and consumption leveled out over the first half of the year.

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The continued rapid growth of China's economy is being driven by investment as exports and consumption leveled out over the first half of the year.

Signs indicate that China will be able to sustain a growth rate above seven per cent for the whole year, or even faster than that of last year.

Latest official statistics show that capital investment rocketed 25.8 per cent in the first five months, exceeding all expectations at the beginning of 2002. But as consumption loses its steam, investment has become the sole engine pushing the Chinese economy.

China's economists suspect that investment growth is usually higher in the first half of the year, but slows markedly in the latter half. But the pro-active fiscal policy and stable monetary policy of the government has proved a strong spur to investment.

The State Information Center forecasts that investment will grow by about 12 per cent for the year, faster than last year.

Over January-May, the growth of retail sales declined from month to month and the consumer price index (CPI) dipped into negatives.

Local economists do not expect consumption to grow rapidly in the short term despite the fact that Chinese people are buying more cars and apartments.

At the same time, exports rallied to cover ground lost in the past few years.

However, Deputy Minister of Foreign Trade and Economic Cooperation Zhou Keren cautions against blind optimism over export growth this year.

He said rising trade protectionism, uncertainties in the international situation and the weakness of the US and global economic recovery would make it more difficult for China to expand its exports.

The Chinese Academy of Social Sciences predicts exports will make a negative contribution to economic growth this year.

Facing such domestic and international conditions, the Chinese government chose to stimulate economic growth through boosting investment.

The government started construction projects funded by treasury bonds earlier than usual this year. A large number of government investment projects will continue through the year. Government investment helped promote the growth of investment greatly in the first half-year.

The State Information Center predicts that conditions are favorable for investment to expand further in the latter half of the year.

The rapid growth of direct foreign investment will be a strong impetus. For example, foreign investment in technical upgrades of Chinese businesses rocketed 58.2 per cent over January-May, more than five times the growth of government funding and corporate financing.

The State Information Center says the financial environment is sound for investment growth at present as China boasts negative inflationary pressure, low interest rates, a big trade surplus and fast growth in savings deposits.

The Chinese people's savings deposits in banks have topped eight trillion yuan (US$967.35 billion), providing a strong basis for increasing loans and investment.

However, China is yet to expand its investment channels. In contrast to a double digit growth in savings deposits, its security market lingered in the doldrums.

Chinese businesses raise less than one quarter of their capital through direct financing, indicating a lack of investment tools for the Chinese people.

Deputy Director of the National Bureau of Statistics (NBS) Qiu Xiaohua says that China has yet to find ways to use investment to restructure the supply matrix in the market to stimulate the buying mood.

Jing Shuping, president of the All-China Federation of Industry and Commerce, said after its access to the World Trade Organization, China should encourage private investment by restructuring its financial system, strengthening intermediary institutions and offering favorable policies in terms of finance, taxation, credit and training.

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