China's economy on path to a soft landing
(Xinhua)
Updated: 2004-06-18 15:05

As over-heated sectors gradually cool off without causing big swings in the overall economic growth, China is bringing its economy to a soft landing.

Investments in fixed assets grew by 18.3 percent year-on-year in May, a significant drop from the 34.7 percent growth rate in April. Meanwhile, the growth rate of industrial production, money supply, prices of capital goods, and consumer price index also subsided to varying extents.

The electrolytic aluminum sector, one of the identified prominent overheated sectors, is also cooling down.

"Since last August, no enterprises have unveiled plans to design and build new electrolytic aluminum projects. Construction of certain projects has been stopped or suspended," said an official from the China Non-ferrous Metals Industry Association.

Steel prices are coming down swiftly from their historical high levels to the normal levels, said Liu Jie, general manager of Anshan Iron and Steel Company in northeast China's Liaoning Province.

"Still, the current prices remain above production cost. There are no widespread closedowns or bankruptcies as a result of the price change," Liu said.

In this process, the Chinese economy has maintained fast growth momentum. Industrial output grew 17.5 percent year on year to 431 billion yuan (US$52.5 billion) in May. Fiscal revenue, foreign exchange reserves, foreign investment, people's income and market sales continued to rise.

Economic analysts said the Chinese central government had been following a macro-control route like this: curb blind investment and low-grade capacity expansion in certain overheated sectors and rectify the land market first, which is done through tightening credit and land control, straightening out investments in fixed assets and strictly cracking down on cases of transgressions in relevant sectors; meanwhile, adopt a series of measures to beef up agriculture and weak links of the economy.

It's due to the synergy of these measures that macro-control took effect swiftly, the sound economic situation in general was maintained and the economy was proceeding in the expected directions, according to the analysts.

Wednesday's executive meeting of the State Council, China's cabinet, held that the current economic situation is sound in general. The government's macro-economic control measures have gained remarkable achievements.

The meeting also pointed out major existing problems, like the excessively large investment scale and the gap between supply and demand of coal, electricity, oil and transporting capacity, and held that macro-control must not let up.

Economic analysts here defined these problems as follows:

Although lower than levels in 2003, the growth rate of investment in the sectors of iron and steel, cement and aluminum remained at high levels.

By the end of April, inventory of coal had dropped to 98 million tons, the lowest point in 20 years.

Due to inadequate electricity supply capacity, 24 provinces, autonomous regions and municipalities have experienced brownouts so far this year. Zhao Xizheng, general manager of the State PowerGrid Company, said China may face the most severe power shortage since the 1980s this summer, with a gap of 30 million kilowatts between demand and supply.

Railway freight capacity falls far short of demand. Due to limited capacity, railway departments could meet only 35 percent of the requests for freight carriages in the first five months.

Experts said fundamentally, the problems in China's economic development can be classified into structural problems, institutional problems and growth mode problems.

The relationship between the primary, secondary and tertiary industries is inharmonious. China's primary industry grew 11.7 percent in the first five months, the second industry 47.8 percent and the third industry 27.7 percent.

The industrial product mix is irrational. Although it has become a leading steel producer in the world, China imported 19 million tons of high-grade steel products in 2003.

In the economic system, some drawbacks of the planned economy still exist. There remains much to do in separating operations of enterprises from the direct administration of the government, reforming the corporate governance mechanism and improving the market mechanism.

In the economic growth mode, China remains after the extensive mode that features high investment and high consumption but low yield and low benefits.

Wednesday's executive meeting of the State Council called for continuous efforts in the following areas in the present stage:

-- Curb the fast growth of bank loans;

-- Step up control over land management;

-- Strengthen the management of grain market;

-- Be well prepared for fighting floods and droughts;

-- Implement measures to deal with power shortage in summer;

-- Increase assistance to agriculture, water conservancy, environment and social undertakings;

-- Deal with the issues of employment and re-employment; and

-- Increase efforts to watch over the issues of food security and industrial safety.

Experts said that if handled properly, it's possible for the Chinese economy to achieve a soft landing. That would lay a solid foundation for steady and relatively fast economic growth in the next year and the following years.