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Cover Stories Series 2012> A Roadmap for Change> Archive
UPDATED: November 26, 2012 NO. 48 NOVEMBER 29, 2012
Picking Up Steam
After seven consecutive quarters of slow growth, a turnaround is underway
By Lan Xinzhen

DOMESTIC DEMAND: Customers pack into a crowded shopping mall in Guangzhou, capital of south China's Guangdong Province, on November 10 (CFP)

"The Chinese economy is like a train without a locomotive, losing power all of a sudden and just gliding forward with inertia." This is how some Chinese people have described their economy over the past two years. Now the train is beginning to whistle. After seven quarters of slower-than-usual growth, a reversal appears underway.

According to figures released by the National Bureau of Statistics (NBS), industrial output started picking up in September and October, with a rise of 9.2 percent and 9.6 percent, against 8.6 percent in August.

The troika of economic growth—retail sale of consumer goods, foreign trade and fixed assets investment—are gaining steam. Stephen Green, an analyst at Standard Chartered Bank, said the Chinese economy is in a U-shaped recovery.

By now the possibility of a "hard landing" can be ruled out, which is undoubtedly good news for the global economy.

Although the improvement is moderate, the general curve shows a steady upturn, making economists optimistic about the future of the Chinese economy.

The Organization for Economic Cooperation and Development said in a report on November 9 that the United States is expected to cede its place as the world's largest economy to China as early as 2016. The organization also says China's economy is likely to overtake the euro zone's this year.

The research institution Frost & Sullivan said China is set to become the world's largest economy by 2025, with a nominal GDP value of $38 trillion.

Turn steady

Zhang Ping, Minister for the National Development and Reform Commission (NDRC), said at a press conference on November 10 that the previous slowdown has been controlled since August.

According to Zhang, the slowdown was due to three major reasons. First, the government lowered its expectations for economic growth to 7.5 percent, which allowed for some leeway in plans to shift the direction of the country's economy.

Second, the international economic environment remains uncertain. Weak external demand has affected China's export-dependent economy.

Third, when external demand shrinks, some industries suffer from an excessive production capacity, a problem that can only be alleviated over time.

The Chinese Government has made it a top priority to stabilize growth this year in order to cope with the above-mentioned issues, said Zhang.

This year, China's central bank lowered its benchmark interest rate twice. Since the second half last year, it cut the required reserve rate three times.

Moreover, it has poured a large amount of liquidity into the financial sector. The NDRC approved many large investment and infrastructure projects this year, with a total investment volume surpassing the 4-trillionyuan ($635.93 billion) stimulus package injected into the economy after the 2008 global financial crisis.

A report by SWS Research Co. Ltd. says the Chinese economy has stabilized. But different from Stephen Green's view that the Chinese economy is in a U-shaped recovery, the SWS Research report says that within a certain period of time, the Chinese economy will be in a horizontal L-shape. According to the report, the Chinese economy in the future will resemble that between 1998 and 2002 following the Asian financial crisis.

While external factors can explain the slowing economic growth, a restructuring of the economy can also be responsible. Time is needed to eliminate excessive production capacity, digest financial risks and transform the country's growth pattern. The economy did not pick up immediately after reaching the bottom, but remained at the bottom for nearly five years.

This round of economic adjustment started in 2007 and the vertical part of the L-shape has now been complete, with the horizontal portion beginning in the third quarter.

"To step out of the present predicament, China should rely on reforming production rather than short-term control," said the SWS report. Present reforms mainly concern income distribution, financial reform and monopoly-breaking reform. The changes, if achieved, are expected to help facilitate the Chinese economy's rise once again.

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