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Xinhua Commentary on China's Economy
Xinhua News Agency published a commentary Tuesday analyzing the impact of China's rapid economic growth on the world economy.

In the present era of economic globalization, the world's economies have grown increasingly interdependent. As a result, China has taken measures to adapt to the global economy, especially since its accession to the World Trade Organization (WTO) in November 2001.

The Chinese government implemented a proactive fiscal policy and a prudent monetary policy and tried to expand domestic demand for rapid and steady economic growth, against the backdrop of the 1997 Asian financial crisis and the subsequent economic fluctuations around the world.

During the 1998-2002 period, China's gross domestic product (GDP) increased by 7.7 percent annually and the living standard of Chinese citizens improved significantly.

China's sound economic performance over the past five years can be attributed to an effective macroeconomic control mechanism and to the Chinese government's unwavering efforts in the areas of reform and opening up to the world.

The effective implementation of the proactive fiscal policy and a prudent monetary policy since 1997 has helped promote the rapid development of both investment and consumption and has contributed to China's phenomenal economic growth, while the world economy remains sluggish.

Statistics show that the country's domestic demand contributed to 96.2 and 97.8 percent of its GDP in 1997 and 2001, respectively.

Although China's consumer price index has been dropping for 14 consecutive months, it cannot be said that the Chinese economy is suffering from deflation.

The prices of consumer goods in December 2002 dropped by 0.2 percent from the 2000 level. The fluctuation remains within the range of 1 percent which is recognized internationally as price stability.

According to the commentary, the drop in commodity prices was brought on by tariff reductions, which were lowered from 15.3 percent in 2001 to 12 percent in 2002 following China's WTO entry, and by deepening reforms within the country's formerly monopolized power, transportation and telecommunications industries.

In addition, the influx of foreign capital and modern technologies has helped improve the country's productivity and reduce production costs. The efficiency of the Chinese economy has been greatly improved, which further boosts economic performance.

In general, deflation is characterized by a decline in commodity and service prices, a decrease in the supply of currency and economic recession.

At present, the Chinese economy and the country's currency supply have been expanding at breakneck speed, making deflation appear increasingly remote.

The commentary says that a robust Chinese economy will benefit world economic development in significant ways.

Statistics released by the World Bank show that the number of persons living in poverty in developing nations worldwide, with the exception of China, increased by 69.7 million from 1990 to 1998. In contrast, the number of Chinese citizens living in poverty decreased by 147.2 million during the same period.

The commentary says that China's road of economic development, which respects international rules and its realities, benefits the progress of mankind. A fast-developing China will help to promote the development of the global economy.

While China benefits from international resources in boosting its economic and social development, it also provides a huge market to global businesses.

At present, half of the country's exports are manufactured by foreign-financed enterprises. In 2002, 52.2 percent of China's export commodities were produced by foreign-funded enterprises, and this percentage is expected to increase in the near future.

From 1999 to 2002, the trade surplus generated by foreign-financed enterprises accounted for 30 percent of the national total.

China's cheap labor, political and social stability, and huge market potential have provided a favorable investment environment and opportunities to global investors.

The commentary says that China's trade surplus derives mainly from the processing industry. In 2001, the processing industry surplus totaled 53.5 billion US dollars, with the general trade sectors having a deficit of 1.6 billion US dollars.

Multinational corporations have not only increased investment in China but have also brought modern production technologies and management expertise, helping to increase the country's productivity and improve the global commodity supply structure.

While the United States, Japan and the European Union are experiencing sluggish economies, the strong performance of the Chinese economy is helping to expand global demand and prevent global recession.

The commentary says that China's current monetary policy is designed to meet its specific needs. The regulated system of floating exchange rates, which has been in place since 1994, best suits current market demands.

In addition, China has consistently maintained the value of its currency. The strong Chinese currency has played a significant role in stabilizing economy in Asia and the world at large since 1997.

According to the commentary, China's impact on the world economy remains limited. In 2001, China's GDP accounted for only 3.7 percent of the world total, lagging far behind the United States' 32.6 percent and Japan's 13.6 percent.

China ranked only the sixth worldwide in terms of export and import, behind developed nations such as the United States, Germany and Japan.

As the world's most populous developing nation, China has an annual per capita GDP of less than US$1,000, about one-thirtieth of that of leading developed countries.

China should continue to cooperate with other countries to further economic development on the principle of mutual benefit and fair competition, the commentary says.

(Xinhua News Agency January 29, 2003)

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