Dispersing the looming shadows regarding whether there would be price hikes and growth slumps, China's economy finally rolled along the fast track of 9.9 percent steadily in 2005. That marks a happy ending to the country's 10th Five-year Plan Period (2001-2005).

Healthy growth

The economy grew in a healthier way in 2005. The 9.9 percent GDP rise cost less (0.5 percent) crude oil.

The figures unveiled by the National Bureau of Statistics have indicated fast growth, good benefits and low inflation in the national economy. Both the stability and harmony have improved.

Last year the agriculture continued the upturn, ending up with a good harvest. Even the husbandry sector hit by the bird flu epidemic kept rising with the meat production 6.3 percent higher than the previous year.

The industrial production increased steadily and fast. Corporate profits soared. Consumer price index went up slightly by 1.8 percent. Price hikes of production materials moderated. The buying prices of raw materials, fuel and power climbed 8.3 percent (5 percent in December) year-on-year. Industrial producers' prices inflated by 4.9 percent (3.2 percent in December) year-on-year.

Urban and rural residents pocketed more income. The domestic market was brisk. The retailing sales of consumer goods jumped 12 percent in 2005 and the consumption gave a 33.3 percent boost to the country's GDP growth.

The GDP rose at a rate of 9.9 percent, 10.1 percent, 9.8 percent and 9.9 percent in the four quarters respectively in the last year, showing a more stable operation with high speed growth and low inflation.

More progress was made on structural adjustment. The agricultural comprehensive production capability has enhanced. Backward capacities of coal, cement, iron and steel, coke and electrolytic aluminum were discarded. The fix asset investment rose sharply but was better structured than before.

Less oil was imported to fuel the fast growth of the economy. China reduced imports of crude oil and refined oil by 5.3 percent and cut consumption by 0.5 percent in 2005, compared with the increase of 36.5 in net imports and 15.3 percent in consumption in 2004. That means China's fast-growing economy cost less energy.

The strain of coal, power, oil and transportation supply also eased last year. Coal was available sufficiently and there were fewer power outages in the country.

Inflation vs. deflation

The rising prices aroused concern over the possible inflation for the first half of last year while there were much more talks about the risk of deflation at the end of the year. Economists are divided on the issue. Some argued that over capacity and excessive supply in some industries may lead to deflation while others warned against inflation driven by expanding money supply.

Inflation or deflation? It is a real question for China's economy.

One of the problems seen in 2005 is over capacity in some industries. As Ma Kai, Minister of the National Development and Reform Commission said at a meeting in December last year: " Over capacity in some sectors has increasingly shown its consequence."

Will this problem lead to deflation? Chinese top statistician Li Deshui reasoned the possibilities for both of the inflation and deflation scenarios. Given the over capacity in some industries, price slump may occur if exports are hindered and growth of residents' income and consumption slows down.

However, there is inflation pressure too, which comes from the soaring international oil price, rising service prices and salaries, as well as excessive money supply. Though neither inflation nor deflation has emerged yet, it deserves special attention to prevent.

As to the issue of over capacity in some industries, the National Development and Reform Commission made it clear at the end of last year that resolving that issue would be even higher on this year's agenda.

Hopes of a good beginning

In conclusion, the year of 2005 has not only laid a good foundation for the steady and fast development of 2006, the opening year of the 11th Five-year Plan Period, but also left behind imminent problems including more difficulties in achieving better harvest and higher income for farmers, over capacity in some industries, the massive fixed assets investment, and the imbalance between the imports and exports.

Looking into this year, there are favorable conditions nationally and internationally for China's economy.

The world economy will continue to enjoy low inflation and high speed. In China's case, the three drivers, investment, exports and consumption, will continue to power the economy.

A good beginning is expectable as far as the policies adopted at the central government's economic conference are implemented with the idea of scientific development.

By People's Daily Online