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China tries to revive economy despite daunting challenges

(Xinhua)
Updated: 2008-11-09 15:43

Lu Zhengwei, chief economist with the Industrial Bank, predicted a CPI rise of 4.2 to 4.4 percent in October, based on weak market demand and a decrease in money supply.

Third, China had increasing foreign exchange reserves. China's current account surplus rose by 18 percent to $191.7 billion  in the first half, according to the State Administration of Foreign Exchange (SAFE), the foreign exchange regulator. The balance sheet revealed foreign exchange reserves of almost $1.81 trillion at the end of June.

Fourth, China had good employment rates. Ministry of Human Resources and Social Security (MOHRSS) spokesman Yin Chengji said the country created 9.36 million jobs in the first three quarters, and helped another 4.09 million laid-off workers find new jobs.

By the end of September, China's registered unemployment rate was unchanged from the end of last year at 4 percent, with about 8.3 million unemployed.

"We should be confident in the country's economic outlook," said Ma Jiantang. "The country has rich resource reserves, great market potential, vigorous enterprises and the government has strong macro-control abilities."

Policy Adjustment

To minimize the negative economic impacts and maintain stable, relatively fast growth, the government made a new policy shift in the current round of macro controls that was initiated despite the high risk of economic overheating.

Challenged by coincidence of increasing uncertainties abroad and problems and contradictions at home, the economy slowed along with the economic downturn worldwide. GDP growth ebbed to 10.1 percent in the second quarter from the first quarter's 10.6 percent level, and dropped further to 9 percent in the third quarter.

The government changed the macro-control policy of preventing overheating and curbing inflation, which was adopted at the end of last year, to a principle of maintaining growth and taming inflation.

"China has to upgrade its economic growth structure. Exports cannot grow fast in the near future -- it is the right time for the government to boost domestic demand and stimulate consumption," said Zuo Xiaolei, China Galaxy Securities chief economist.

Worrying about a cooling economy and other domestic problems amid a deepening world credit crisis, the People's Bank of China, the central bank, cut the RMB benchmark deposit and loan interest rates of financial institutions, both by 0.27 percentage points, from October 30. The one-year benchmark deposit rate was lowered from 3.87 percent to 3.6 percent and the loan rate from 6.93 percent to 6.66 percent.

It was the third interest rates cut in two months. This was a timely response to the rate cuts by other central banks worldwide and part of a coordinated effort to stem the global financial crisis.

The central bank also cut the reserve-requirement ratio for smaller lenders to bail out struggling smaller businesses. Then it slashed the ratio for all commercial banks.

The State Council, or cabinet, scrapped the 5 percent individual income tax on savings interest earnings from October 9. The same day, it scrapped the tax on the interest income of individual stock accounts, aiming at stable development of the capital market.

The export tax rebate for textiles and garments, for instance, was raised to 14 percent, shortly after the previous rise from 11 to 13 percent on August 1.

China's textile exporters, who would enjoy higher profits with the rise of the export rebate rate, welcomed the rise, but said it was still not enough.

"The rise of export tax rebate will help boost textiles exports, but the effect is not obvious enough," said Fan Min, chief analyst of China Web Textiles, a website of the country's textile industry.

"We need to elevate the export rebate to 17 percent to bring about obvious benefits to textile enterprises." Many exporters find it just as hard to edge into the domestic market as the foreign markets.

One way to survive is to develop "necessity products" for foreign buyers. At the Canton Fair, Ningbo Greenland Garment Co. Ltd. received more than 100 orders in two days at its stand, largely from Europe and Russia. The secret, said Yang Jianzhong, boss of the plant, was its down and feather garments.

Signed orders had met 80 percent of the plant's processing capacity. "Although Europe is also affected by the global economic slowdown, down clothing is still needed for people of Russia, France, the Netherlands and Poland in winter. And we design them more fashionably," said Yang.

Many other businesses are turning to Russia, the Middle East and Eastern Europe, where demand appears strong.
"Our orders largely came from Russia and Ukraine on the Canton Fair. We had barely any orders from Western Europe and the United States," says Lou Qijin.

"We have to shift our strategy. We are busy replacing toy packages with Russian notes and we are adjusting products to show Russian styles," said Lou. He estimates the Russian market has accounted for 30 percent of Christmas gift exports in Yiwu.

Exports to the Middle East and Brazil, which are further from the financial turmoil, increased considerably to offset drops to Western Europe and the United States. "We have to speed up our business in Russia. We will be finished if the Wall Street financial tsunami freezes Russian consumption one day," said Lou.

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