By Qi Jingmei (China Daily)
Updated: 2007-07-27 11:06

The author Qi Jingmei is an economist with the State Information Center

The overall picture of the Chinese economy in the first six months is quite encouraging: It is heading forward speedily, its structure has been further optimized and public welfare has been boosted.

GDP growth has seen continuous acceleration in the first six months and the consumer price index (CPI) has remained high. From March to June, each monthly rise of the CPI broke the 3 percent ceiling set by the central bank for the year.

In the first half, the GDP figure was 10.677 trillion yuan ($1.41 trillion), up 11.5 percent on the same period last year and 0.5 percentage points higher than the growth speed achieved in that period. The GDP grew by 11.9 percent in the second quarter, the quickest since 1994.

The economy is blistering, but the high rate does not necessarily indicate overheating, as the boom is supported by substantial improvement in the economy's potential for further expansion.

In recent years, there has been a solid advance in the basic industries, like coal mining, electricity generation, petroleum refining and transport. Consequently, the supply of production factors is relatively adequate for an economic speedup.

The country also has plenty of funds to forward the economy due to the accumulation of private wealth and the inflow of foreign investment.

In addition, demand, both domestic and foreign, is robust and is a major engine for growth.

Domestic demand used to be weak. Between 1997 and 2001, the value of sales of consumer goods grew by 8.7 percent a year, far less than the annual rises of GDP and investment during the same period.

Vigor was injected into domestic consumption after the government initiated policies to motivate spending, reallocate income in urban areas and lift farmers' incomes in 2002.

In 2005, the value of consumer goods rose 12.9 percent; in 2006, by 13.7 percent; and in the first half of 2007, by 15.4 percent, the fastest since 1997.

After manufacturing bases from around the world moved here, China saw a huge rise in its processing trade. Products labeled "Made in China" now take a big share of the international market.

The trade dependency ratio - the percentage of exports and imports against GDP - was 71.7 percent in the first six months.

The strong upward momentum in CPI, 3.2 percent in the first half of the year, has triggered concerns over inflation among the public, but runaway inflation is unlikely in the short term.

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