Stronger Yuan Arouses Concern
Unilateral appreciation of the renminbi goes against China's sound economic growth
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UPDATED: January 26, 2014 NO. 5 JANUARY 30, 2014
Outstripping Expectations
The Chinese economy looks set to maintain stable and moderate growth in 2014
By Lan Xinzhen

Dark clouds on the horizon

Sun Jie, a researcher with the Institute of World Economics and Politics of the CASS, said it will be a little difficult for the Chinese economy to maintain steady growth in the long term. "It is possible to ensure stable growth in the short term, but to maintain steady growth, particularly in the long term, China must overcome a series of chronic problems and make tough adjustments to its economic structure," Sun said.

He believed the Chinese economy has been heavily relying on investment and exports. Such structural imbalance, he argued, threatens the sustainability of China's economic growth. Over the past decade, China has attached importance to the development of science, technology and other emerging industries, but the potentials of these industries in pushing forward economic development are far from being fully realized. Therefore, it would be a great challenge for China to maintain 7-percent annual growth in coming years by relying primarily on the science and technology industries.

Ma also said that the Chinese economy is in a crucial period of transformation, with many long-existing deep-rooted problems not yet resolved and foundations for economic recovery needing to be further consolidated. Moreover, he claimed there are still risks present in local government debts and that the government should further intensify shutdown of outdated production capacity. All these problems require that the Chinese Government continues reform in various aspects of economic and social development.

Chen Daofu, chief of the Research Institute of Finance at the Development Research Center of the State Council, thought the biggest challenge that the Chinese economy faces is its overall transformation, and that a model driven by domestic demand and centering on consumers must be established. This requires rebuilding the relationship between the government, the market and society. The measure of streamlining administration and delegating power to lower levels of the Central Government, which was initiated in 2013, is just the beginning of the effort to re-establish this relationship.

According to Chen, the current economic situation indicates that the task of reducing overcapacity is still arduous. In 2013, only 76 percent of the production capacity in Chinese industrial companies was actually utilized, lower than the international average of 80 percent. Overcapacity in the industries of steel, electrolytic aluminum, cement, flat glass and shipbuilding is particularly serious, with only 70 percent of production capacity being utilized.

An overabundance of loans in industries or projects with redundant construction or overcapacity go against the targets set for economic restructuring, and will also bring many risks to the financial industry. The cash crunch Chinese banks experienced in 2013 may become the norm in 2014, a factor which will threaten the steady growth of the Chinese economy.

Silver lining

China is deepening its reforms in the year 2014. Liu from CASS said the Chinese economy will face the challenges of uncertain demand and continual restructuring inherent in deepened reform, but that the international environment will take a turn for the better and the reforms will help to stabilize market expectations. Therefore, despite some brief periods of fluctuation, he believed the overall economic performance will be stable and the economic growth will rise slightly.

Liu continued that although the rate of economic growth in 2013 became more stable, it is not an inexorable trend. In 2014, China should continue effective macro-control and seek a balance between "ensuring growth, readjusting structure and advancing reform."

He suggested that China properly expand government-led investment so as to offset some influence on the economy brought about by the slowdown of investment growth, but it should avoid stimulating new surplus capacity. Liu also said that China should continue its prudent monetary policy, and promote development of the real economy and transformation of its economic structure by adjusting the allocation of financial resources.

Xu Gao, chief analyst on macroeconomy with Everbright Securities Co. Ltd., thought China's GDP growth in 2014 may go up to 7.9 percent, and investment and consumption may make a contribution to the economy equal to that of 2013. As the prospects for recovery in developed economies becomes clearer, exports will play a significant role in driving up economic growth.

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