Top Biz News
Economists urge caution over production capacity
By Xin Zhiming (China Daily)
Updated: 2010-01-22 07:44
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A village bank worker, left, explains the terms of a microfinance loan with farmers in Xihu, a village near Rizhao in Shandong province. Microfinance has helped many small businesses to flourish.[China Daily] |
Many analysts are now more concerned about the economy overheating than they were about it contracting a year ago when the global financial crisis hit China.
The country's year-on-year gross domestic product (GDP) growth reached 9.1 percent and 10.7 percent in the third and fourth quarters of 2009 respectively, and it is expected to rise further in the first quarter of this year.
The rapid growth constitutes cause for concern as the country has pumped massive amounts of investment into the financial system, say economists.
The mass injection of liquidity -new yuan-denominated lending last year almost doubled that in 2008 - jazzed up China's economy and helped industrial output resume strong growth momentum, leading to another problem: Overcapacity.
"China's production capacity is expanding continually but where is the market to satisfy this increased capacity?" said Wang Yiming, deputy director of institute of macroeconomics at the National Development and Reform Commission (NDRC).
China used to sell a large part of its products overseas, but the slump in overseas demand following the global economic slowdown has pushed many Chinese exporters to the wall, narrowing the room for manufacturers to sell goods.
The second transition refers to the country's upcoming economic restructuring, which is expected to make the economy more consumption driven, services oriented and environmentally friendly. The first transition, which began in the late 1970s, was focused more on growth.
As the government put the final touches to the 12th Five-Year Plan (2011-15), leaders have realized the dilemma they face and are aiming for a more balanced development mode.
"Massive fiscal and monetary stimuli have successfully substituted for the lost growth in the short term, but Chinese leaders have made it clear there is a limit to public investment and monetary expansion," said C. Lawrence Greenwood Jr., vice-president of Asian Development Bank, during the seminar. "Chinese bank regulators and central bank officials have also been taking steps to guard against the emergence of credit bubbles and inflation."
The People's Bank of China, the central bank, encouraged commercial banks to extend more loans last year to support agriculture, small and medium-sized enterprises (SMEs), and businesses in less-developed middle and western regions of China - all segments of the economy that could be important growth engines but create less bubbles.
