Don't Make a Misunderstanding of Chinese Economy, Goldman Chief Economist

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Last updated at: (Beijing Time) Thursday, January 23, 2003

Don't Make a Misunderstanding of Chinese Economy, Goldman Chief Economist

"It is easier to solve the problem of China; the reduced exportation of other countries has nothing to do with China. private consumption is the motive force for the growth of the Chinese economy", expressed Jon Anderson, an economist when he had an interview with the media in Beijing.

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Three big misunderstandings about the Chinese economy

Jon Anderson said, the first big misunderstanding is that the growth of Chinese economy these years relied on the pulling of financial expenditure. He is of opinion that the conclusion might be correct some 5 years ago. However, judging from the situation during the recent one or two years the contribution of the government expenditure to the economy was not up to one percent, which would remain the same in 2003.

The 2nd big misunderstanding is that though the economy sees a very good perspective the SOEs are in a comparatively diffused state with no much earnings while some of the industrial areas didn't get much benefits either due to an influx of great amount of foreign capital. Jon Anderson pointed out: the profits in many domestic enterprises have actually begun to recover. Moreover, in the recent one or two years we've seen a brisk growth in the urban consumption. Whether it's auto, or film-roll, or electronic product, in a word any consuming goods has witnessed a quick increase and whether domestic or foreign owned enterprises have benefited a lot in this regard.

The 3rd big misunderstanding is the worry of the Chinese banking system. Some people are worrying of the high rate of non-performed loans in China. If the bank cannot clear up the bad-debt problem within 3 - 6 months the Chinese finance is confronted with a crisis.

Take Japan for instance, analyzed Jon Anderson, in Japan's banking system, many enterprises are landed in debts and they need to incite the new loan-clearance bank. First of all, these loaned enterprises have to reduce their debts. But the situation in China is different. The bad debts of the early period were mostly in those poorly managed SOEs or in other words, the private enterprises or in the aspect of individual credit consumption there is still very big potential for a new growth of loans. So we can come to a conclusion, though China is facing a serious problem it is yet easier to solve it.

The decrease in exportation from the US and Japan has nothing to do with China

In a situation in which when the world economy was in a low tide the Chinese economy on the contrary has kept a quick increase, especially the later half of 2002 saw a strong growth in China's exportation. Under such circumstances, there arose a saying in the world that China constituted a threat to other countries in the world and still another saying was that China was making its dumping in the world.

About this, Jon Anderson holds that there are two reasons for China's strong exportation. First of all the world economic depression happened mainly in the field of products for investment. However, what China is good at is that of the consuming goods, and in this trade, China has accounted for a very big share of the market. Therefore, the weakness in world economy has exerted a little influence on the Chinese economy.

Secondly, most of the Chinese enterprises are working on processing trade, and so in many aspects there was a double calculation. Many commodities were coming from the Republic of Korea to be processed and then to be exported. There must be a forward-and-backward double calculation on them, in which the majority of the profit (the higher part of the profit) was taken away by other countries while China has only got the minority of it (the lower part of it) and that's why the little impact on China.

On the part of China, the price of the manufacturing industry is surely on the decrease. China is centered on the aspect of labor-intensified products and actually it can exert very little influence in the fields of IT, or electronic products and that of machinery equipment.

Three major growths for the Chinese economy in future

2002 saw China's economy maintain a comparatively quick growth rate. What's the next step to take for keeping a continuous quick growth? Jon Anderson, after analysis, has it that to keep the Chinese economy a higher growth rate, it depends on the following three major pivots.

First, the increase of individual consumption, 2002 saw a very big internal demand in housing property, durable consuming goods, such as autos, materials for household furnishing and decoration. Due to the quick increase in average personal income the private consumption served as a major growth point pushing the Chinese economy forward.

The second is the demand for services. Here refers mainly to the expansion of demands for tourism, financial service and investment and transportation facilities. These factors will join together to drive the economy forward.

The third is that the trades with higher added value, such as the IT, biotech, pharmaceutical and chemical industries. They will also become the motive-force pulling the growth of the Chinese economy.

Q: Along with the continuous speed-gaining growth of Chinese economy whether the cost will become higher and higher for the foreign capital to enter China?

A: What you say about the cost perhaps refers to the raise of wage, or the acute competition that will increase the cost of the foreign capital for entering into China. But you have to be aware that the wage-level in China now is still very low as against that in many other countries in the world.

Take the manufacturing industry for instance, the monthly wage is about USD 100 while the wage in Latin America is much higher than that in China. Therefore, in China the cost composition is relatively low while the return is quite high. Nonetheless, along with the raising of the output and productivity, the product-price will be on a ceaseless decrease. Therefore, in some trades with very acute competition, such as auto and household appliance industries the profit rate is going down.

So should any foreign businessmen come to us for consultancy our piece of advice is generally to inform them that they be not to invest in those product manufacturing industries as drink, TV or shampoo, for some domestic enterprises in China will perhaps turn out products better than you do.

If any trades of foreign capital would like to get more profit they'd better invest in general in those offering good services, needing hi-tech or those of capital-concentration. Because in these trades, the Chinese enterprises have not enough strength to compete with the foreign owned ones and so in these trades, they can do better than the domestic ones in China.

Q: Whether it is suitable for Chinese enterprises to list in overseas stock market in so far as the global economy at present is concerned?

A: I think the most important thing is still the following two questions, namely the first is the cost and opportunity for financing. For this, there must be a very good balance of the two. I think, in the whole stock market in 2003 it will see a turn for the better, a better turn of around 10 - 30 percent. If waiting for another 3 -5 years, probably you'll get less money and the cost for listing will be getting higher.

Secondly, in view of the Chinese government, for enterprises to list for financing it is not only a question of commercial exchange but also a way through which it is to realize a better management, reorganization and transformation of them. And so to make a better balance of them it's better to take an adequate consideration of the two questions, the opportunity and the cost.

By People's Daily Online

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