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Economist: China's Economy Is in an Ideal State
Professor Fan Gang, director of the China National Economy Research Institute and economics advisor to the State Council, recently indicated in Tianjin that China's economic development is now in an ideal state. In the process of globalization, China is in a very good position among all other developing countries in terms of the opportunity it is facing.

In his report entitled "The Economic Situation in an Epoch of Change and Analysis of the Capital Market", Fan Gang points out that China's current economic growth rate is 8 percent, the country is free from inflation, although there exists deflation which, however, will possibly stop in the latter half of the year. Under the circumstance featuring the entry of China's economy into market competition, China's present economic growth is in a very good, stable state.

"This economic situation will continue on in the foreseeable future, this tendency will persist at least in one to two years' time," he analyzes: "The growth of investment is being gradually resumed. In the first five months of this year, foreign capital increased by 29 percent and this tendency will continue in a couple of years. The growth of foreign capital is boosting the growth of non-governmental investment, the growth of non-governmental investments, including that of private-, shareholding-, State-owned enterprises, is being restored, with investment surging 9 percent in 2000, 13 percent last year and expected to reach 15 percent to 16 percent this year and even higher. Economic growth propped up this way is relatively solid."

He emphasizes it is a misunderstanding of those who hold that China's present investments are propped up mainly by State investments and, on this basis, question China's economic development. Last year's 13 percent investment growth did not contain the growth of government investment; government investment increased in the first half of this year, this is because some investments were arranged ahead of time in the first six months. For the whole year, the annual amount of investment remains at 150 billion yuan as it was in the past.

"Besides, the growth of China's foreign trade and export is being restored, China's consumption is also relatively stable," he said, currently the question of macro-economy is not China's main problem, the main issue is how to do something of reform by taking advantage of economic growth, reform of the service industry, in particular, should be stepped up.

Fan gang affirms that the theory of so-called "a 20-year limit" to the oriental economy is "groundless". He said there should be no problem with China's economic growth in a period of 40 years. In the past 20 years since the launch of the reform and opening-up program, there has been almost no rise in the cost of China's labor power. One favorable condition for the rapid growth of the Republic of Korea (ROK) and the region of Taiwan is a fairly good international market. Today, China has met with an international market plagued by deflation, but China has a piece of domestic market to make up for the shortage of the international market. Given this, China has greater room for maneuver.

"Currently, the key matter requiring China's attention lies in how to seize the opportunity brought about by globalization to develop itself as fast as possible. And among the numerous economic growth points offered by globalization, the most important one is the development of the large batch of small and medium-sized enterprises."

Fan Gang says, "Globalization has caused the products and elements of production to be allocated globe-wide, entailing the formation of a global production network, procurement network and a scientific research and innovation network. The entry of transnational corporations into China has created many business opportunities for China's small and medium-sized enterprises. It has not only created an opportunity for these businesses to produce parts and components; but also the products thus produced serve the production of the global market and serve to provide auxiliary items for the global market.

Therefore, grasping the opportunity offered by the industrial structural adjustment to the global manufacturing industry and the opportunity brought about by the global purchase and production network is of great benefits for small and medium enterprises."

Fan emphasizes that Chinese enterprises should not belittle the production of parts and components for transnational corporations, in the process of providing auxiliary items, they can learn foreign technology, sale and market means, accumulate capital, and then gradually effect the transition to the creation of their own brands, this may be better than the previous manufacture of some whole machines lacking competitiveness under so-called protection.

(People’s Daily August 2, 2002)

Hu Angang on China's Economic Future
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