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Print Edition> Business
UPDATED: January 23, 2011 NO. 4 JANUARY 27, 2011
Back on Solid Ground
The Chinese economy steers a steady course of more balanced growth, but inflation and asset bubbles are posing daunting challenges

RURAL WEALTH: A farmer in Jingbian County of Shaanxi Province tends to tomatoes in a greenhouse. Income of farmers in Jingbian grew rapidly in 2010 as the county developed more modern agriculture techniques (TAO MING)

Nearly three years after the sweeping financial meltdown, China's green shoots of economic recovery are in full bloom while Western markets have yet to move out of the shadows. China's GDP grew a robust 10.3 percent to 39.8 trillion yuan ($6.05 trillion) in 2010, accelerating from 9.2 percent in 2009, said the National Bureau of Statistics (NBS).

"China experienced a very complicated economic situation last year," said NBS Commissioner Ma Jiantang. "But with flexible policies in place, the economy was able to move on a fast track of growth, though growth rates dipped."

The good news is the growth is balancing out, relying more on consumption. "The hi-tech industries gained strength, and China's western regions played a swift game of catch-up with their eastern counterparts," said Ma.

Current reports hold that China also replaced Japan as the world's second largest economy in 2010. Ma downplayed the success, saying China still lags far behind in terms of residents' wealth. China's per-capita national income ranked only 124th in the world in 2009 according to data from the World Bank, said Ma. In addition, more efforts are still needed to optimize the economic structure and find new ways to conserve energy and water resources.

The Chinese economy appears to be stabilizing, reducing the risk the country will suffer a hard landing as post-crisis stimulus is withdrawn, said Li Daokui, a member of the central bank's Monetary Policy Committee and a professor at Tsinghua University. "Domestic demands have remained buoyant and effectively filled in the blanks left by weaker exports," he said.

The GDP grew 9.8 percent in the fourth quarter of 2010, compared with 11.9 percent, 10.3 percent in the first and second quarters, respectively.

The economic slowdown has been due in part to the government's measures to curb industrial overcapacity and adjust the economic structure, said Zhu Baoliang, a senior economist at the State Information Center.

"That will require a compromise on growth, but given its far-reaching implications, it is well worth the effort," he said.

Li Yang, Vice President of the Chinese Academy of Social Sciences, said China still has a long way to go toward a rebalanced economy. Specifically, the country has to cover considerable ground to propel innovation, the service sector and modern agriculture.

"We are optimistic about the economy's prospects and are glad to see that imports outpaced exports last year, a needed boon for the economic structural adjustment," said Justin Yifu Lin, chief economist at the World Bank. "But we still have our concerns. Learning lessons from many crisis-stricken countries, China must also fend off financial risks, bridge the income gap between the poor and the rich, and protect the environment."

Jitters about inflation and simmering real estate bubbles, said Ba Shusong, Deputy Director of the Financial Research Institute at the Development Research Center of the State Council, also pose daunting challenges to the economic future. "In response, policymakers are supposed to walk a fine line between maintaining growth and curbing inflation," said Ba.

Powering forces

While the slowdown in 2009 was attributable to a collapse in external demand, the seeds of the recovery were predominantly homegrown last year. Of the 10.3-percent GDP growth, only 0.8 percentage points were from exports, 3.9 percentage points from consumption and 5.6 percentage points from investment, said the NBS.

Last year total retail sales of consumer goods stood at 15.5 trillion yuan ($2.4 trillion), rising 18.4 percent compared with 2009. The consumer market is bursting with vitality, drawing strength from a vibrant economy and wage growth across the country, said Wang Xiaolu, Deputy Director of the National Economic Research Institute of the China Reform Foundation.

Credit Suisse recently forecasted China may see an annual growth rate of 19 percent, or a 139-percent increase in salaries from now to 2015 as the nation's supply of labor dwindles. The wage inflation will help China become the world's second largest consumer market in five years, said Tao Dong, chief regional economist for non-Japan Asia at Credit Suisse.

Last year per-capita disposable income of urban residents climbed 11.3 percent from a year ago to 19,109 yuan ($2,904) while per-capita net income of farmers was 5,919 yuan ($900), up 14.9 percent year on year.

Meanwhile, government efforts to repair the social safety net have put numerous residents on a firmer social footing and relieved the anxiety making them willing to save.

For several consecutive years, the country has been raising the basic pension for retired workers by 10 percent annually and some provinces have also bumped up the basic living guarantee level. Besides this, China aims to widen its new rural social pension system to cover 40 percent of all rural areas in 2011, up from 23 percent last year. The annual subsidy for basic medical insurance of urban residents has also been raised to 200 yuan ($30.4) from 120 yuan ($18.2) per person in 2010.

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