By Cheng Siwei
I said on July 1 that the country's economy was at a low ebb because of internal and external troubles. Now I can say the situation has turned better.
The momentum of the rapidly accelerated inflation has slowed down. At a conference of the Political Bureau of the Communist Party of China (CPC) Central Committee in July, the central leadership highlighted that the emphasis of the work in the latter half of this year was to ensure a steady and relatively rapid economic growth while curbing the roaring prices. A series of measures have been taken on the basis of this principle to prompt economic development.
Usually, measures to curb inflation have some negative effects on economic development. The central government made it crystal clear that it would take controlling inflation as its chief target. For this purpose, it might seem necessary to slow the pace of economic development a little. But we cannot afford to slow the pace too much given the country's enormous population. At the annual session of the National People's Congress (NPC) in March, this year's economic growth rate was set at 8 percent. Whatever happens, I think we should keep a more than 8 percent economic growth anyway.
Quite a few economists now do not consider inflation a challenging problem, citing the decline in the country's consumer price index (CPI) from an average 7.9 percent in the first half of this year to 6.3 percent in July. This is too optimistic, I think. It is natural that the CPI begins to show relaxing signs in that the central government has taken a series of workable measure to curb the rocketing CPI that emerged from the latter half of last year. We should never ease our efforts on this issue. At the NPC session in March, the central government set the limit of this year's CPI growth within 4.8 percent. But developments in the past few months indicate the target is out of reach.
The chief economic goal in the latter half of this year will still be to maintain a steady economic growth and put inflation under control. We should make efforts in investment, consumption and export to ensure the GDP growth rate will not fall too much.
First, we should ensure an efficient use of investment and not reduce investment too much, especially in agriculture, high-tech and other sectors closely related to people's livelihoods. To boost consumption, we should ensure a simultaneous income growth for a massive number of people with the country's economy. Also, we should try to tap new areas to spur people's consumption, including expanding the banks' individual credit business. Individual credit, which is as high as 60-70 percent in some foreign countries, accounts for only 12 percent of the banks' credit business in China.
Second, the government should raise the minimum allowance standards for lower-income group. Third, the country should adjust its export structure, from high energy-consuming products to energy-saving ones, given the current high level of energy prices. Also, as the export to the U.S. is expected to decline because of the appreciation of the RMB against dollar, we should expand new exporting destinations beyond the U.S..
The country has already mapped out some policies and measures to refuel economic growth, such as those in spurring the development of small and medium-sized enterprises and the export of textile and garments. The promulgation of a new regulation on the foreign exchange system in August also strengthened the control of the flow of transnational capital and effectively stopped the frequent and quick inflow and outflow of international hot money.
Then what other macro-control measures will the government possibly take in the remaining months of the year? I am not sure whether the country will raise the much-expected personal income tax threshold and adopt the inflation-adjusted savings deposit system, although I personally recommend these two.
When taking any measures, the authorities should always take into consideration their positive and negative effects and the national economic strength. But what I am assured of is that the government will press head with its just-established principle of ensuring the country's steady economic growth and curbing the flying prices.
The largest challenge to our country in the years ahead, in my opinion, is still in the reform and the transformation of government functions.
After 30 years of reform and opening-up, the reform process, while achieving considerable progress, has already entered a crucial stage. In further pushing the process forward, we should try to appropriately deal with the relationship between the rule of law and the rule of personal will, between fairness and efficiency, between government and market, and between centralism and decentralism. We should further push for the transformation of government functions and the establishment of a service-oriented government.
The author, an economist, is former vice-chairman of the NPC Standing Committee.
(China Daily September 10, 2008)