Opinion

Some reflections on the post-crisis period

By Zhou Qiren (China Daily)
Updated: 2010-02-03 07:49

Chinese people have also been affected by the initial underestimation of the crisis to the overestimation about its impact on the Chinese economy.

The country's economic boom has partly been driven by its flourishing export-bound manufacturing sector. However, by mid-2008, the country's export declined to a negative 20-percent growth rate from the positive 20-30 percent rate in previous years. Under such circumstances, some concluded that the country would likely face a negative growth in 2009 and 2010, dismissing the 8-percent growth target previously set by the central government.

The adverse economic environment prompted the Chinese government to launch a basket of stimulus packages, including a $586 billion investment campaign and a $110 billion special fund on healthcare construction. The packages, together with an astronomical $1.32-1.47 trillion in bank loans, helped the country obtain an 8.7-percent economic growth in the past economic year.

So what is this year's economic outlook? Worries are abound that the country's economic recovery is not steady and is still precarious. However, data shows that investments contributed 7.3 percentage points to last year's economic growth, consumption at 4 percentage points, and exports at negative 3.6 percentage points. New macroeconomic policies by the central government also indicate that the contribution of investments and spending to the economy is not expected to drop. Under such preconditions, the pace of the country's economic growth will accelerate if its exports begin to recover this year. The expected growth in US, as the largest world economy grows steady, will also expand China's exports.

A problem that all countries should not ignore is the possible price they should pay via their stimulus packages to rescue the staggering world economy. So will China, a country that has launched a stimulus campaign to check its economic slowdown. The country's supply of M2 (money and "close substitutes" for money), which is 20 percentage points higher than its GDP growth, is sure to produce negative effects for long-term economic development. The flood of currency supply in a variety of sectors is expected to push up domestic commodity prices sooner or later. That makes it necessary for the country to attach importance to the problem of inflation and take effective measure to minimize inflation risks.

The author is director of China Center for Economic Research, Peking University. The article was originally printed in the center's bulletin.