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China Strives to Change Growth Mode

Top Chinese leaders have shown strong determination to increase the share of consumption in the country's economic growth for stable and fast development.


The signal was sent from the central economic work meeting which closed last week.


The meeting stressed that the key to stable and fast economic growth is to enlarge domestic demand, setting tasks for the next year including adjusting investment and consumption relations as well as boosting consumption.


China has put consumption enlargement in an important strategic position and will make progress in this field in the coming years, according to analysts.


China's economy still faces the potential danger of big ups and downs in the 11th Five-Year Program period (2006-2010), which is of the strong concern to the strong-investment and weak-consumption growth mode, said Zhuang Jian, an advanced economist with the China agency of the Asian Development Bank.


China's economy started a new round of growth in 2002, but the major driving force is investment characterized by high costs, high energy consumption, high pollution and low efficiency.


Fixed asset investment has increased at a speed of over 20 percent in the past three years. Investment accounted for over 44 percent and consumption 53 percent of the gross domestic product (GDP), respectively.


Consumption relative to GDP is over 20 percentage points lower than the world average.


"Investment can cause big ups and may lead to big downs," said Wang Xiaoguang, economist with the National Development and Reform Commission (NDRC).


Against a background of strong fixed asset investment growth, the steel, cement, electrolytical aluminum and real estate industries saw overheated growth in the latter half year of 2003.


To avoid the translation of overheated investment in some fields into widespread inflation, China took macro-control measures to reduce the swelling of fixed asset investments.


Continuous strong investment growth has resulted in high productivity, but electrolytic aluminum, ferroalloy, calcium carbide and coke have recently all seen price drops due to oversupply.


In turn, concerned companies suffered profit drops.


If consumer demand cannot be enlarged, over-productivity caused by over-investment will be more and more serious and the Chinese economy will risk getting "too cold" in several years, said Wang.


The ensuing bankruptcy and unemployment would threaten the social stability, he said.


The central economic work meeting has dedicated itself to enlarge consumer demand and tighten macro-control over fixed asset investment next year.


The State Council held an executive meeting recently to tackle over-productivity, indicating that capping the strong productivity of some industries will be one of the major problems to be addressed through macro-control next year or even in several years.


Consumption expansion will obviously become the core task of Chinese economy. The central economic work meeting proposed such measures as increasing residents' incomes, construction of a new countryside with socialist characteristics and enlarging employment.


Consumption in urban areas has little potential while rural areas with a population of 800-900 million, still have big room for consumption growth, said Zhuang.


The core task for rural construction is to develop a rural economy and raise farmers' incomes. The government will invest heavily in roads, drinkable water, power supplies, telecommunications, education, culture and medical services.


These measures will enhance farmers' abilities to spend money and if the potential in the vast rural market is realized, China will not have to worry too much about the over-productivity, said Zhuang.


Compared with investment, consumption is an important factor which helps maintain stable economic growth and is also a sustainable driving force that benefits people.


In the first three quarters, the growth rate difference between consumption and investment reduced by 1.3 percentage points. If consumption continues to rise and investment keeps growing at a proper rate, the Chinese economy will achieve fast and sound growth in the 2006-2010 period, said Zhuang.


(Xinhua News Agency December 7, 2005)


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