Will China's economy hit an inflection point next year?
(People's Daily Online)Updated: 2006-10-31 14:40
Some media have been predicting that China's rapid economic development has reached the glass ceiling and that a downward inflection point will appear as early as next year. Wang Tongsan, director of the Institute of Quantitative and Technical Economics at the Chinese Academy of Social Sciences accepted an exclusive interview to address China's general economic prosperity in the coming year.
Understanding the economic inflection point
Q: What is the meaning of an economic inflection point?
Wang Tongsan: Academically, an inflection point can be explained in this way. When we look into the economic growth rates in both the first and second year, it doesn't matter if the growth rate in the second year is higher or lower. The key is the growth rate in the third year. If the economic growth rate increases in the second year, and continues to rise in the third, this is not an inflection point. If the growth rate increases in the second year but decreases in the third, then what we call an inflection point has occurred. Similarly, if the speed of growth decreases in the first and second years but increases in the third, this is also an inflection point. Put it into a statistical example, China's economic growth rate was 10.3 percent and 10.5 percent in 2005 and 2006 respectively. If the economic growth rate in 2007 is lower than 10.5 percent, an inflection point will be charted.
However, the occurrence of an inflection point does not necessarily mean that the entire economic situation has dramatically changed. The inflection point should be understood from two perspectives. The inflection point may indicate normal fluctuations in the economy. The growth rate could simply be a bit higher for two years and slightly lower in the next two. Inflection points can be found in normal fluctuations of the economy. However, the inflection point may also indicate overall economic operations have to some extent, undergone a qualitative change. This qualitative change appears in two forms: one is quite intense, representing a change of one and a half or two percentage points or even more; the other is a more moderate fluctuation. However, even though the changes are not drastic, they indicate a trend, which will continue for several years in the same direction after the inflection point first occurs.
No qualitative inflection point will occur
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