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Economy on Fast Track Next Year

Editor's Note: The State Information Center and Shanghai Securities News have recently issued a series of forecasts on China's economy next year, the following is one excerpt from those reports:


China's economy will keep growing robustly next year thanks to four dynamic cyclical demands, but some external factors should be taken seriously.


The four cyclical demands, namely, the upgrading of the consumption structure, adjustment of the industry structure, accelerating urbanization and the shift of global manufacturing to China have already put the economy in an upward surge since 2002.


Those vigorous engines are expected to maintain their strong steam next year, thus keeping the economy on the fast track.


First, the pace of upgrading the consumption structure will only speed up next year, contributing to a strong domestic demand.


The Engel coefficient, an index measuring the proportion spent on food of the total consumption expenses and reflecting people's living standard, was down to 0.39 in urban China in 2000, and further slipped to 0.37 in 2003, a level at which, according to the experiences of the world's major countries, an upgraded consumption structure can be witnessed, with vigorous housing, transportation, and communications consumption.


Housing purchases in China have already entered into a long-term yet fast growing phase, a trend that is reflected by the high growth rate of investment in real estate in recent years. For example, property investment increased by 25.3, 21.9 and 29.7 percent in 2001, 2002 and last year respectively. The investment momentum was maintained this year, with investment growing by 28.8 percent in the first 10 months.


While the housing sector is booming, auto and communications industries are also witnessing skyrocketing growth thanks to the strong demand unleashed by consumer's upgraded consumption structure.


The growing car consumption, in particular, has become an irreversible trend.


This upgrading of the consumption structure has not only directly stimulated investment in and development of real estate, car, electronics and travel industries but also greatly spurred the development of other related sectors such as power, chemistry and building materials.


Second, mainly driven by the consumption structure upgrading, the industry structure adjustment, another engine propelling China's vibrant economy, has also been greatly pushed forward this year.


Since 2000, the upgraded consumption makeup, which is led by soaring housing and car consumption, has pushed heavy industry which, in turn, will unleash enormous demand for the machinery and equipment-making sectors. Meanwhile, the development of the heavy industry will also spur the growth of other industrial sectors.


More importantly, the performance and efficiency of the enterprises this year are also improving by a big margin. For instance, industrial enterprises of a certain scale registered profits of 913.3 billion yuan (US$110.4 billion) in the first 10 months of this year, a year-on-year increase of 39.7 percent.


Third, the accelerated urbanization drive has kept the growth of fixed investment on a rather fast track.


According to statistics from the National Bureau of Statistics, China's urbanization reached 40.5 percent in 2003, 12.5 percentage points higher than that in 1993, an annual increase rate of 1.25 percent.


Experiences in other countries' urbanization show that when the urbanization level is between 30 and 70 percent, the country's economy is at a phase characterized by its accelerating urbanization. Judged by this criterion, China has just entered the middle phase of the quickening urbanization process and the urbanization is predicted to grow at least 1 percent annually in the coming years.


The sweeping urbanization is expected to see an influx of farmers to the cities and towns, a process that will certainly increase the demand for the urban infrastructure. The process, therefore, will spur the investment in infrastructure construction, which is an important part of investment makeup.


China has become a hot spot for the manufacturing industry around the world and foreign investment keeps pouring into the country.


Lured by an immense pool of cheap labor and an expanding market, foreign investors, led by multinational giants, have embarked on a new round of investment in China, accelerating the pace of world manufacturing moving to China.


Based on the above analysis, those four dynamic forces, it is predicted, will maintain their strong momentum next year and as such, will keep the national economy on the fast track.


However, how fast Chinese economy will develop next year will also depend on some external uncertainties, among which the oil price is the most important volatile factor.


Compared with this year, the outside environment next year is predicted to be less favorable for China's economy.


The world economy, according to the United Nations, International Momentary Fund, and World Bank, will shift from a robust growth to a moderate one next year, growing 0.5 or 1 percent slower than that in this year.


After taking into account all those domestic and external factors, we predict that the national economy will still keep its strong momentum next year.


The economy could post at least 8 percent growth next year, or as high as 9 percent, depending on how the world economy and oil prices fare.


(China Daily December 23, 2004)


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