Stabilizing Prices and Promoting Steady Development Through Scientific Macro-Control

From: English Edition of Qiushi Journal Updated: 2012-07-04 14:21
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The year 2011 was an extremely challenging year in which China was forced to come to grips with complex and unpredictable economic environments both internally and externally. However, 2011 was also a year in which China solidified and further built on the gains that it had previously made in response to the international financial crisis. In spite of numerous challenges and risks, China’s economy has undergone a smooth transition from policy-stimulated growth to self-propelled growth over the past year, making a good start to the Twelfth Five-Year Plan.

Local residents purchase fresh vegetables in Shanghai’s Songpan Vegetable Market. By sourcing vegetables from the farms, the market sells vegetables at prices lower than those at wholesale vegetable markets on the day in question. / Xinhua (Photo by Xu Congjun)

I. China’s economy has continued to develop in line with the expectations of macro-control policies

1. China’s national economy has maintained steady and rapid growth. China’s GDP grew by 9.4% in the first three quarters of 2011. In a year in which the sovereign debt crisis in European countries continued to worsen, the global economic recovery continued to stumble, and the world’s major economies continued to experience economic decline, it was no easy feat for China to maintain a growth rate of 9%.

2. Rising goods prices have been brought under control. The Chinese government made the stabilization of goods prices the number one priority of its macro-control policies in 2011, taking a series of initiatives and measures in an effort to stabilize goods prices. As these policies gradually took effect, the growth rate of consumer prices declined for four consecutive months starting from August 2011. In November 2011, China’s CPI increased by 4.2%, a decrease of 2.3 percentage points compared to July, representing the first time that the CPI had dropped to below 5% since March 2011.

3. Grain output increased for the eighth consecutive year in 2011. The Chinese government stepped up its efforts to support grain production in 2011. Aided by a combination of increased government support and favorable climatic conditions, China registered yet another bumper grain harvest for the year. According to preliminary figures, grain output reached a record high of 571.2 million tons in 2011, a whole 24.75 million tons greater than the output recorded in 2010, representing an increase of 4.5%. This bumper harvest laid down solid foundation for the stable operation of the national economy and the stabilization of goods prices.

4. China delivered a sound economic performance in 2011. China attached great importance to the transformation of its pattern of economic development and the restructuring of its economy in the year 2011. As a result, in addition to maintaining rapid economic growth, China also recorded significant increases in fiscal revenue and enterprise profits. China’s fiscal revenue rose by 26.8% during the period from January to November 2011, while large-scale industrial enterprises recorded a profit increase of 24.4% compared to the year before.

5. Living standards have continued to improve. In 2011, China stepped up its efforts to improve public well-being, leading to further improvements in regard to employment, earnings, and social security. In the first three quarters of 2011, the average cash income of rural residents and the average disposable income of urban residents increased by 13.6% and 7.8% respectively, with the growth rate of the former being 5.8 percentage points higher than the latter. During the first three quarters of 2011, an additional 9.94 million people found employment in cities and towns across the country, exceeding the annual target of 9 million new jobs by 10%.

In summary, the overall state of China’s economic and social development was sound in 2011. Considering the complexity and severity of the external situation that China faced in 2011, as well as the mounting difficulties and challenges that its economy faced domestically, these achievements were indeed hard won. China’s solid economic performance bears testament to the correct orientation of its macroeconomic policies, demonstrating that its macro-control initiatives were scientific, powerful, and effective.

II. Bolstering positive trends in economic and social development

In 2012, China is set to face even more complex and severe situations, both internationally and domestically. The sovereign debt crisis in European countries is continuing to deepen; the major developed economies are making a slow recovery; the growth of emerging economies is slowing down; and downward pressure on economic growth from within China is increasing. In response to these complex situations, we must adhere to the basic principle of making progress on the basis of stability, so as to bolster positive trends in economic and social development.

1. The basic state of China’s economy remains unchanged; and there are still many favorable conditions that will help China to maintain stable and relatively fast economic growth

From a medium and long-term perspective, China’s economic development is still being presented with important strategic opportunities. First, China is still in a period of accelerated industrialization and urbanization. These trends will drive on the demand for investment and stimulate consumer spending, which in turn will exert a sustained push on economic growth. Second, the positive effects of industrial relocation from eastern regions to central and western regions are becoming increasingly apparent. By drawing on their industrial foundations and their advantages in regard to labor and resources, China’s central and western regions are accommodating the relocation of industries from eastern regions at an increased pace. This process is propelling the upgrading of industries in China, and is set to provide a sustained driving force for growth. Third, the development of strategic emerging industries, which are best represented by the equipment manufacturing industry and high-tech industries, will accelerate and emerge as a new impetus for economic growth. From January to November 2011, China’s equipment manufacturing industry grew by 15.8% while the high-tech industry grew by 16.5%, exceeding the average growth rate of large-scale industries by 1.8 and 2.5 percentage points respectively. In addition, the large-scale construction of infrastructure in recent years has helped to remove constraints on economic growth, creating favorable conditions for China to maintain stable and relatively fast economic growth.

From a short-term perspective, China’s domestic demand is continuing to grow steadily. In 2011, the overall state of consumption and investment in China was favorable, with the two playing a more important role in driving economic growth. In the first three quarters of 2011, the contribution of domestic demand to China’s economic growth was 101.3%, an increase of 13.1 percentage points over the same period of 2010. Of that total, the contribution of consumer demand to economic growth was 47.9%, up 15.2 percentage points. Judging from the current situation, consumer spending is set to increase steadily in 2012, due to increases in earnings and improvements in the social safety net. Autonomous investment has continued to gain momentum, with private investment growing at a relatively rapid pace. From January to November 2011, private investment increased by 34.7% compared to the same period of 2010, exceeding the overall growth rate of investment by 10.2 percentage points. Moreover, the proportion of private investment rose to 58.9% of total investment. With the addition of investment by local governments, China’s investment in fixed assets is expected to maintain relatively fast growth in 2012.

In regard to regulatory measures, China still has room to maneuver in its fiscal and monetary policies. China has kept its fiscal deficit within 3% of the GDP and its government bond balance within 20% of the GDP over the past years, far lower than the internationally recognized warning lines. Fiscal revenue has maintained relatively fast growth. From January to November 2011, China’s fiscal revenue grew by 26.8% compared to the same period the year before. The rapid growth of fiscal revenue has provided the government with a strong financial backing for the regulation of the economy. On the other hand, as the effects of regulatory policies to keep prices under control have become increasingly apparent, China has gained more room to maneuver in regard to its prudent monetary policy.

2. We should be more mindful of potential dangers and pay close attention to various challenges that may constrain the continuation of China’s steady and rapid economic growth

We should be aware of the new situations and changes that have recently emerged in China’s economic development. First, the growth rate of industries saw fairly large declines for two consecutive months. In October and November 2011, the growth rate of large-scale industries dropped 0.6 and 0.8 percentage points respectively, signaling a month-on-month decline. Second, a decline in the growth of exports was also recorded for three consecutive months. In 2011, the growth rate of exports dropped 7.4 percentage points in September, 1.2 percentage points in October, and 2.1 percentage points in November. Third, considerable slowdown was seen in the growth of enterprise profits. In 2011, the profits of large-scale enterprises increased by 27.0% from January to September, 25.3% from January to October, and 24.4% from January to November compared to the same period the year before. Fourth, the Purchasing Managers Index (PMI) dropped to less than the threshold level of 50% in November. In November 2011, China recorded a PMI of 49.0%, a decrease of 1.4 percentage points compared to the previous month. This was the first time that the PMI had dropped to below 50% since March 2009. Although the PMI climbed back to over 50% in December, the prospects for manufacturing still remain sluggish.

Moreover, prominent conflicts and problems that threaten to constrain China’s steady and rapid economic growth will continue to exist for a long period of time. On one hand, China will still face inflationary pressure over the medium to long term. With the continued advance of industrialization and urbanization, China has now entered a stage of development during which inflationary pressure will continue to exist on a long-term basis. During this stage, rigid pressure for production factors, such as labor, land, resources and environmental factors, to go up in price will persist for a long period of time. At the same time, the effects of excess liquidity in the international market are still prominent, and there has been no significant letup in inflationary pressure originating externally. On the other hand, China’s economy still faces the problems of imbalanced, uncoordinated, and unsustainable development. These problems mainly include the increasing environmental and resource constraints on economic development, the unbalanced relationship between investment and consumption, and the significant gap in income distribution. In addition, China’s capacity for technological innovation is insufficient, and there are still many institutional and structural constraints that are preventing us from achieving scientific development.

3. We should seek to make progress on the basis of stability and promote the steady and rapid development of China’s economy and society

We must maintain the continuity and stability of our macroeconomic policies and continue to implement a proactive fiscal policy and a prudent monetary policy, and further consolidate the gains that we have made through macroeconomic regulation. In addition, as new situations and problems emerge during the course of economic development, we must make our policies more targeted, more flexible, and more oriented towards the future. On one hand, our fiscal policy should be more proactive. We should step up efforts to implement a policy of structural tax reduction, enhance our regulation over the distribution of income, and increase subsidies to rural residents and low-income residents in urban areas. In addition, we will devote more efforts to developing social programs, and further improve public well-being. On the other hand, monetary policy should be more flexible. On the basis of maintaining rational credit growth, we should optimize our financing structure in accordance with the principles of differential treatment and guaranteeing the growth of some sectors while suppressing the expansion of others. We should implement differentiated credit policies, and provide increased support for small and medium-sized enterprises, agriculture, rural areas, and rural residents, emerging industries, and enterprises that are capable of making technical innovations.

We must correctly determine the intensity of macro-control policies and maintain a sound balance through anticipatory adjustments and fine-tuning. First, the intensity of fine-tuning should be conducive to consolidating the hard-earned gains that we have achieved in our efforts to keep prices under control. Although good progress has been made in keeping prices stable, we must be aware of the fact that inflationary pressure will continue for a long period of time. We are yet to build a concrete foundation for the stabilization of prices, and there is still a risk that prices may rebound. Under such circumstances, we should be vigilant against rising prices while implementing macroeconomic policies. Second, the intensity of fine-tuning should be conducive to accelerating the restructuring of the economy and the transformation of the pattern of economic development during the Twelfth Five-Year Plan.

(Originally appeared in Qiushi Journal, Chinese edition, No.2, 2012)

Author: Commissioner of the National Bureau of Statistics

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