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UPDATED: August 6, 2007 NO.32 AUG.9, 2007
Economy Maintains Good Health
Xie paints a picture of the macro status quo, and looks at the newly adopted regulatory policies to curb overheating, as well as challenges that lie ahead
  
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China's national economy has maintained rapid even growth in the first half of 2007, according to Xie Fuzhan, Commissioner of the National Bureau of Statistics. He was referring to major economic indicators of the January-June period that reveal that China's gross domestic product soared 11.5 percent and trends look set to rally for the second half of the year. In an article published in People's Daily, Xie paints a picture of the macro status quo, and looks at the newly adopted regulatory policies to curb overheating, as well as challenges that lie ahead. Excerpts follow:

Chinese economy flush

The Chinese economy kicked off a new cycle of growth in late 2002. In the first half of 2007, its growth rate stood at 11.1 percent from January-March, and 11.9 percent in the following three months. Meanwhile, the world economy has also seen accelerated growth. Most recently, the International Monetary Fund has slightly raised the forecast for world growth rate to 5 percent from previous 4.7 percent. Additionally, Chinese exporting enterprises rushed to apply to customs before the July 1 deadline, starting from which state policies on export tax refunds and other tariffs would be changed, in an attempt to rein in the bulging trade surplus. The mammoth trade surplus is expected to be eased, with its growth rate returning to normal for the rest of the year.

Actually, macroeconomic adjustments have been more focused on inflation control. Crude oil prices swelled over the past four years, rising from $25 per barrel (crude) before the Iraq war in 2003 to $70 per barrel, averaging above $60 worldwide. Meanwhile, primary products, particularly natural resources, have been generally pricing higher. As a result, in 2003-06, China's producer prices for manufactured goods increased 4.1 percent year on year on average, purchaser prices for raw material, fuel and power jumped 7.6 percent, but consumer prices merely edged up 2.1 percent, while the core consumer price index (CPI)-the index excluding eight of the most volatile components-stabilized below 1 percent. Latest CPI uptrend is the result of price fluctuations involving agricultural and poultry products, and partially caused by changes of supply and demand in the world grain market. In fact, purchasing prices of pork have long been underestimated, resulting in the falling number of live pigs. In the first six months of 2007, the core CPI inched only 0.9 percent after the deduction of changes in grain and energy costs. Price fluctuations in short term are therefore mainly structural, and growth rates of producer prices and purchaser prices for raw material, fuel and power are declining. In short, the overall supply and demand are balanced. In retrospect to the oil crises that hit industrialized nations in 1973 and 1982, respectively, China's current economic development and price level are healthy under macro control.

The employment rate, a major economic performance indicator, is closely associated to people's livelihood, particularly in a densely populated nation like China. During the period of 2003-06, China's rapid economic increase created enormous job opportunities, and nearly 40 million people were newly employed in urban areas. Though job-searching pressure intensified, China's newly employed numbered higher in 2007. During January-June period, 6.29 million new jobs were offered in urban China. The number of reemployed laid-offs was 2.79 million. Aged and poorly trained labors who previously had difficulties in finding a job were placed in 740,000 positions. At the end of June, the registered urban unemployment rate was kept below 4.1 percent. More jobs have helped increase income, and thus improved livelihood.

International balance of payments is of great significance to stabilize the Chinese economy in a macro perspective. China's trade surplus has continued to grow since 2005 and recurrent trade frictions are increasingly obvious. The Chinese Government has therefore implemented new policies, particularly scrapping the yuan's peg to the U.S. dollar and introducing a more flexible exchange rate regime. Since the reform was launched in July 2005, the Chinese currency has appreciated about 8.6 percent against the greenback. In an attempt to further spur imports, China has begun to collect export tax, reduced the general tariffs on imports and cut refunds for exports. With foreign exchange controls being relaxed, Chinese businesses are encouraged to make more overseas investment. China's staggering trade surplus, which assures China stronger international competence, indicates an overall improvement of its national strength, capacity utilization, job creation and resistance against financial risks. While on the other hand, it has triggered more trade frictions and disputes with other nations.

After its entry into the World Trade Organization, China's easier access to the global trade system and competitive edge have generated mounting trade surplus. It is also determined by China's current stage of development. Looking back at history, some economic superpowers had initially enjoyed extended trade surplus. Records show that, in the 97 years from 1874 to 1970, the United States experienced 93 years of surplus. Germany maintained that momentum for 54 years during the 1952-2005 period, while Japan kept a surplus for 25 years from 1981.

In good shape

As it ushered in the new era, China's economic development has opened a brand new chapter. Consumption upgrade drives optimization of industrial structure, accelerating the pace of industrialization. The percentage of industrial added value to the national gross domestic product rose to 43.1 in 2006 from 40.5 three years ago. Investment in the sectors of exploration, energy, raw material, equipment manufacturing, IT and light and textile industries have witnessed a dramatic increase, both in output and technological level. China's manufactured goods have met national demands, and are entering global supply chain. Correspondingly, infrastructure and the industrial base have been strengthened. Over the past four years, installed power generating capacity rose 260 million kw and railways in operation increased 5,000 km, along with speed and carrying capacity. Highways extended 169.2 million km, of which 20,000 km are sections of expressway. Shortages of coal, electricity and oil have been eased, fundamentally eliminating bottlenecks restraining economic development and further stimulating development potential.

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