Think Tank

Economic growth keeps momentum

By Yi Xianrong (China Daily)
Updated: 2010-10-29 07:57

The Chinese economy has completely extricated itself from the downturn risk that emerged after the outbreak of the global financial crisis in 2008 and is again on a steady and healthy track, the third quarterly economic data released by the National Bureau of Statistics (NBS) shows.

The 10.6 percent GDP growth rate in the first three quarters overshadows economic performances in the United States, other Western countries and even some emerging economies. It is expected that China's GDP growth for the full year will be 10 percent if it can maintain the current momentum in exports, consumption and investment, the three major engines for a country's economy.

The just-published economic data shows that the country's agriculture enjoys good prospects and there is expected to be a bumper harvest in the autumn. Despite occasional natural disasters over the past years, the country has still managed to achieve good agricultural production and there has been almost no time when its main agricultural products were in short supply. This is largely related to preferential government polices, the substantial improvement in agricultural efficiency and the increasing marketization of agricultural production over the past years.

However, there has arisen a worrying phenomenon in the country's agricultural development, as few farmers have really benefited from the agricultural boom or the rises in prices of agricultural products. In view of this, the most pressing problem that needs to be resolved is not how to ensure the statistical increase in the country's agricultural production, but how to redistribute the benefits of agricultural prosperity and determine who has snatched the lion's share.

The government should make a thorough overhaul of its past agricultural development formula in a bid to re-establish a path that can make farmers wealthier.

How to improve the income of farmers and make them become the real consumers will decide whether or not the country can realize sustainable and steady economic development in the years ahead. It is also a key to guaranteeing the fast-growing economy access to lasting prosperity and strength.

The NBS data also indicates that China's industrial output has maintained rapid growth and the economic effects of enterprises have substantially improved. In the first three quarters, the country achieved a 16.3 percent growth year-on-year in industrial added value of above-scale industries. From January to August, above-scale industrial enterprises achieved a profit of 2.61 trillion yuan ($392 billion), a 55 percent growth year-on-year.

These are indications that the country's domestic enterprises have emerged from the shadow of the global financial crisis and are back on the track of rapid growth. For example, the domestic auto, aviation and insurance sectors all realized record profits and sales volume, testifying to both domestic industrial prosperity and robust domestic consumption.

However, despite being on a solid footing, the rapid growth in the country's currency supply over the past months has added an uncertainty factor to the national economy. By the end of September, the country's balance of M2 supply was 69.6 trillion yuan, an increase of 19 percent on the same period last year. In fact, since the credit expansion campaign it launched in 2009, the country has been plagued by unrestrained bank lending.

Despite the government's vigilance over credit over-expansion and the series of measures it has taken to rein in fluidity, the credit distribution is still on a large scale this year, fuelling excessive fluidity. Under these circumstances, property prices have kept rocketing, which will inevitably be passed on to the price of consumer goods.

China's CPI has been on an upward tendency over the past months. It is expected that this momentum will be carried forward into the following months. The flood of currency supply should be held accountable for the country's current price hikes.

It is time that the government made preventing this predicted inflation from becoming a reality a top priority, together with unremitting efforts to contain real estate bubbles and rein in liquidity.

The author is a researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences.