Measures needed to attain soft landing

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Last updated at: (Beijing Time) Wednesday, February 18, 2004

Measures needed to attain soft landing

China has to tackle several major challenges to realize a soft landing of its economy this year after rapid expansion over the past few years, experts said.

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China has to tackle several major challenges to realize a soft landing of its economy this year after rapid expansion over the past few years, experts said.

The year 2004 will be crucial for China. Maintaining the stability of the economy as a whole and further improving market mechanisms in the coming months will determine whether it can ensure solid long-term growth, said Wu Jinglian, a renowned Chinese economist, at a forum held on February 17 in Beijing.

The Chinese economy still has many flaws in its structure, such as low efficiency in agriculture and the low income of farmers. Moreover, there has also been over-investment in many sectors in recent years, as reflected in low-level repetitive construction, overexpansion in some cities, rapid growth of the loan supply and the emergence of a serious energy shortage, he said.

Over-investment is largely the result of administrative orders and that's why reducing administrative interference and building a market mechanism that respects the rules of the market will be crucial to solving the problem, he said.

China's gross domestic product (GDP) grew by 9.1 per cent last year, but projections generally point to a slight slow down in growth amidst continuing momentum.

Dominic Wilson, senior global economist at Goldman Sachs, predicts that China's GDP growth will slow down to 5 per cent by 2020.

In the near term, though the economy will meet some bottlenecks, the chance of attaining a soft landing is still likely, he said.

Some parts of the economy are going to see slower growth, but other parts, like consumer spending, will continue to increase, he said.

If the Chinese economy can rebalance the source of growth relatively smoothly and if policy remains supportive of these initiatives, 2004 can be a good year for growth in China, he said.

Some economists, however, are less optimistic. Tao Dong, Asia chief economist at Credit Suisse First Boston, said that rising prices for power and many raw materials have sliced the profit margin for manufacturers. Moreover, fast economic expansion would see a doubling of output in sectors like auto, iron and steel, mobile phones and machinery. That could induce an oversupply of such products in the next two to three years, when the economy is expected to gradually cool down.

The fast growth of the bank loan supply would also increase risks in the financial sector, he said.

In adjustments to lending policies, banking authorities are trying to upgrade the loan structure and are rethinking the methodology by which businesses receive loans, said Zhu Min, executive assistant president of Bank of China, which is undergoing shareholding restructuring to realize a public listing.

Source:China Daily

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