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Flexible macro-control

(China Daily)
Updated: 2008-10-21 07:48

The Chinese economy is running into stiff headwinds with the gross domestic product (GDP) slowing from 10.6 percent for the first quarter to 10.1 percent for the second quarter and now 9 percent for the third quarter.

The slowdown is sharper than expected and it surely justifies high vigilance against the gradual impact that a worsening global financial crisis and looming recessions in many other economies will exert upon the country.

Chinese policymakers must be ready to demonstrate adequate flexibility and prudence in adjusting macro-economic measures to maintain stable growth. There should be a sense of urgency, but no need to panic.

Though the country slipped into single-digit growth in the third quarter for the first time in at least four years, its economic growth for the January-September period remained higher than the 9.8-percent average for the past three decades.

The effects of weakening external demand may make it impossible for China to boost economic growth by exporting more. Yet, the country still has ample domestic demand to tap if related reforms can be accelerated now.

Latest statistics show mixed results in this regard.

On the one hand, the good news is that, in spite of the overall slowdown, the growth rate of the primary sector in the first three quarters was 0.2 percentage points higher than the previous year's level. This bears full testimony to enhanced government support for agricultural growth. A solid agricultural sector is crucial to both narrowing the income gap between urban and rural residents and sustaining long-term development of the world's most populous country.

Besides, accelerated growth of retail sales and fixed-asset investment last month also provides reassurance to policymakers counting on domestic demand to take up the slack from ebbing exports.

On the other hand, the disappointment is the growth pace of the service sector still falls behind that of the industrial sector, underlining the huge difficulty to change the growth pattern.

To improve energy efficiency and cut pollution, the country has to reduce dependence on industrial expansion for economic growth. The Chinese government has made it a priority to boost development of the service sector which has created more jobs than any other industries since 2000.

But faster industrial growth means that the country keeps falling behind schedule to increase the share of its service sector in GDP by 3 percentage points between 2006 and 2010.

As a major contributor to global growth, the Chinese economy is widely expected to expand strongly to cushion the world against the ongoing financial turmoil and economic uncertainties.

With a fiscal surplus and a world record $1.9 trillion of foreign exchange reserves, the government is also capable of stepping up spending.

(China Daily 10/21/2008 page8)