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UPDATED: August 6, 2010 NO. 32 AUGUST 12, 2010
Crisis Focus: About Slight Slowdown

Fears of a "double-dip" recession are haunting the world economy. But a "double-dip" recession is quite unlikely in China as long as the Chinese Government can properly deal with the real estate market, control credit expansion and stabilize the stock markets, said Yi Xianrong, a senior researcher at the Institute of Finance and Banking of the Chinese Academy of Social Sciences, in an article in Shanghai Securities News. Edited excerpts follow:

China's economy has shifted into high gear since the beginning of this year. The investment has maintained a high growth rate—with a 25-percent year-on-year growth in the first half of this year. The export outlook is not as gloomy as previously anticipated, as machines in factories started buzzing again late last year. Domestic consumption might be growing much faster than market expectations. For instance, auto sales surged more than 50 percent year on year in the first five months, and are expected to reach 17 million units in 2010. Civil aviation, passenger and cargo transportation are ballooning. Rural consumers have become more generous spenders. These indicate domestic consumption is replacing exports and investment to be the strongest propellant for economic growth.

Many domestic and foreign research institutes forecast a 9.5-10 percent GDP growth in China this year. Compared with an estimated 3-percent growth in the United States and 1-percent growth in Europe, China will have taken the lead in world economic recovery this year, although the growth might slow down a little bit.

A mild economic growth readjustment might be conducive in that it would force our country to give up a deliberate pursuit of GDP and to focus more on upgrading people's lives and welfare.

At present, we should not be too concerned about a slight economic slowdown. However, we must be wary of the following three problems.

First, the property bubble must be squeezed out before the Chinese economy can get on the right track. After the State Council unveiled 10 measures to rein in the property market, property prices went down slightly for a short period of time but soon stopped. It is impossible to maintain healthy property market growth if the property price continues to stagnate while transaction volume keeps falling. To break this stalemate, the government should forcefully strike speculative activities in the property market and send such signals to property speculators.

Second, the domestic year-on-year credit growth must be kept at about 15-16 percent. Some government officials and business managers are in favor of excess credit expansion, regardless of market sustainability. But a 9.5-10 percent growth in GDP could only absorb 15-16 percent of credit growth. Any excess supply will deal a heavy blow to China's economy in the future.

Third, the domestic stock market should develop soundly so that companies can have a valid and effective way for financing and excess liquidity can be absorbed. More importantly, a stock market rally serves as a leading indicator of economic revival. A sound stock market performance indicates a brighter economic outlook.

As long as we can properly resolve the abovementioned problems, not only is a "double-dip" recession avoidable, but the economy might grow beyond market expectations.

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