The domestic economic field generally holds a positive perspective on China's first quarter macro-economic indictors. Foreign experts also generally agree that China's economy has bottomed out and shows signs of improvement.
However, under the global economic downturns macro background, is basis of improvement solid enough? Can China continue this recovery trend? On this topic, People's Daily held an exclusive interview with Yu Bin, minister of the Macroeconomic Research Department of the State Council Development Research Center.
Indicators bare witness to economic recovery
Q: Can we judge that China's economy had bottomed out and is showing signs of improvement after seeing the first quarter economic indicators?
Yu Bin: According to the major macroeconomic indicators of the first quarter, China's economic performance continued to maintain a downward trend since the second half of 2008. GDP growth further declined to 6.1%, falling 0.7 percentage points compared to the same period last year. However, with the implementation of the government' economic stimulus package and its gradual effect, a series of macroeconomic indicators and leading indicators have obviously improved. In March, the added value of industrial enterprises above designated a size increased 8.3% compared to the same period last year. The entire social fixed asset investment and the total retail sales of social consumer goods went up 28.8% and 15.9%, speeding up 4.2 and 3.6 percentage points compared with the same period last year respectively. It is estimated that the first quarter should be the bottom of current economic downturn. In the second quarter, China's economy will rebound to some extent. In this way, under the macro background of the global economy downtown, China is expected to take the lead in economic recovery.
"Troika" is not solid
Q: Is the basis of economy improvement solid enough to support a sustained recovery?
Yu: I believe that the basis of economic recovery is currently not stable. The prospects and the sustainability of the economic recovery remain to be seen. We all know that the "Troika" - consumption, investment, exports are the main driving force of economic growth, we can analyze the basis for economic recovery from three aspects.
First of all, in the first quarter, consumption and investment growth have reached a relatively high level, but they just reflected the effects of government policies to a large extent, such as large-scale increase in government investment, the rapid expansion of credit size and home appliances transported to rural areas. While the market-driven domestic demand expansion lacked strong support. Continuous declines in economic growth have a greater negative impact both on employment and expected income. A large number of graduates found difficulties in finding jobs, the employment opportunities for migrant workers reduced, they were both detrimental to the continued expansion of consumer demand. If the short-term demand increases were mainly from the middle rather than the final consumption demand, we will not be able to fundamentally solve the problem of insufficient demand. Even more, the problem of already existing excess capacity is likely to become aggravated.
Secondly, from an investment perspective, since the beginning of this year the economic benefit of export-oriented enterprises further declined compared to the same period last year. Through the industrial linkage and income contraction effect, the benefit decline of export-oriented enterprises directly affected the production and economic benefits of other domestic enterprises. At the same time, some export-oriented enterprises were forced to turn to domestic sell-oriented, which intensified competitive pressures in the domestic market and further reduced the profit margins for enterprises. From January to February, the profits of industrial enterprises above a designated size decreased 37.3% year-on-year. The significant continued decline of enterprises economic benefits will not only affect revenue, investment capacity of enterprises and employment size but will also weaken the loan-repaying ability of enterprises and increase the bad debts of financial institutions.
Finally, let us look at the export situation. The financial crisis that originated from the US has evolved into a vicious circle of interaction between the financial crisis and entity economic recession, the mutual influence between the crisis center and peripheral nations. Currently, the crisis has not yet bottomed out and is likely to spread to new areas and regions. Some countries have adopted large-scale measures to rescue the market, but smooth and effective implementation remains to be seen. If the financial market can not be stabilized, an improving world economy situation is likely to fluctuate again. Affected by the financial crisis, on the one hand, in order to lower the market risk and reduce the excessive capital accumulation, foreign importers reduced the foreign storage on a large-scale, leading to a significant decline in China's export orders; On the other hand, the substantial depreciation of the exchange rate in some countries eroded China's export competitiveness. At the same time, financial and trade protectionist tendencies have evidently gained ground in developed countries. The "de-globalization" idea is also spreading. Although the decline in exports in March slowed from January and February, the possibilities for China's exports continued to shrink once again due to the spread of the crisis and the substantial decline of foreign demand that still exists.
Pros and cons of credit surge
Q: So, a substantial increase in the first quarter credit can still not lay a solid capital foundation for the economic recovery?
Yu Bin: The continued large-scale increase of loans from financial institutions provided capital support for the government to increase investment, eased the problem of liquidity shortage and also provided a relatively relaxed financing environment for enterprises to increase investment and expand production. However, there still existed certain risk if the currency and credit was put in too fast.
There was a newly added loan of 4.58 trillion yuan in the first quarter, accounting for more than 90% of 5 trillion yuan for the whole year. From the full-year view, there are two possible consequences: First, if newly added loans can not be substantially increased, then a fast introduction of currency and credit since the first quarter will apparently lack sustainability. The size of credit will substantially reduce in the second, third and fourth quarters. Once the size of credit has contracted significantly, the normal operation of the entire economy will be affected and the good tendency of economic recovery may be reversed. Second, if we continue to maintain the same expansion pace as the first quarter, then the newly added loans for the whole year will reach an unbelievable level. Excessive expansion of currency with matching fiscal policies, possible re-entry of international speculative capital together with the possibility of re-bubbling of the price of a large number of domestic social capital, real estate, stocks and other assets increase the risk of a structural inflation. The economy operation may get into the situation of growth decline and inflation coexistence.
By People's Daily Online
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