China needs more flexible economic policy in second half 2009

China's economy is expected to hit bottom and recover within this year However, the eight percent growth rate target is still an arduous task to achieve.

On June 8, Jia Kang, director of the Research Institute for Fiscal Science under the Ministry of Finance wrote in an article for the People's Daily saying that data for the the first quarter and April showed that the effects of the expansive macro-policies is becoming visible and the national economy is expected to recover within this year. A targeted economic growth rate of about eight percent will still be hard to achieve however.

The Purchasing Managers' Index, Economic Climate Index and Entrepreneur Expectation Index as well as the volume of automobile sales, amount of houses sold, volume of railway passengers, port throughput, and consumption and investment data (including that of new projects) are all promising and favorable to restoring and strengthening confidence.

There was a slight downward trend in the use of electricity and in industrial added value in April after a rise from January to March. It remains to be observed whether this is only a short-term move, which would be unable to affect the general trend of recovery.

Foreign trade are still facing a grim situation, but the month-on-month rate of decline has slowed down.

Credit increments were high and prices of commodities have also reached a low level, indicating eased inflation pressure and well-controlled risk of deflation. It is not necessary to worry about the occurrence of inflation before prices stop go down .

GDP is at a low growth rate of 6.1 percent, lower than the targeted annual growth rate of 8 percent. However, compared to last year's sharp fall from 13 percent year to 6.8 percent in the fourth quarter, the rate of decline has slowed down significantly.
Fiscal revenue from January to April dropped accumulatively 9.9 percent year-on-year, that is, 225.7 billion yuan less than that of the same period last year.

The causes, apart from a falling economic growth rate, slumping enterprise profits, relatively more policy-based tax cuts (including a significant rise in export tax rebates), also include a decrease in fiscal revenue calculated on the basis of the current price which has declined, and the relatively large proportion of revenue carried forward in the same period last year from the previous year.

Meanwhile, refined oil tax payment reforms of the first quarter of this year also led to a 38.5 percent surge of consumption tax.

It is roughly estimated that over 100 billion yuan of fiscal revenue was lost merely due to economic slowdown. This highlighted the fiscal difficulties caused by economic downturn.
As far as enterprises are concerned, performances of some large enterprises have improved, while export-oriented and small- and medium-sized enterprises are still facing difficulties. But the expectations from enterprises have been improved.

Generally speaking, China's macro-economic operation, falling into a downturn under the impact of global financial crisis, is approaching its end or on the way of bottoming out. If no unexpected conditions occur, the national economy is expected to recover after hitting rock bottom this year.

Meanwhile, it is also worthy of note that on the basis of the 6.1 percent GDP growth rate in the first quarter, the task of achieving a targeted 8 percent annual GDP growth rate will be arduous.

By People's Daily Online