Coming into Land
- By Yu Nan
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ChinAfrica, November 28, 2011
In economic terms, the "lost decade" refers to Japan's economic stagnation throughout the 1990s after its strong growth in the 1980s. Against the backdrop of a shaky global recovery, concerns have recently grown over a possible hard landing for the Chinese economy, caused by monetary tightening which is aimed at controlling inflation. Some scholars have even predicted that China will be at risk of falling into its "lost decade" of prolonged weak economic growth. Nouriel Roubini, the U.S. economist known as "Dr. Doom" due to his grim forecasts, said China's economy would likely suffer a hard landing in 2013.
However, many analysts have said that it is unlikely for China's economy to see a drastic decline in growth and experience a hard landing, and its economy is heading toward expectations under the government's macroeconomic policies.
Slow pace
Latest data adds to the evidence that the economy is slowing gently.
The purchasing managers' index (PMI) in August, a composite indicator of operating conditions in the manufacturing sector, rose to 50.9 from a 29-month low of 50.7 in July. This indicated that economic growth had stabilized after a slowdown in the first half of the year, the China Federation of Logistics and Purchasing (CFLP) said.
According to data from the National Bureau of Statistics (NBS), China's GDP growth cooled to 9.5 percent year-on-year in the second quarter of 2011, slightly down from the previous quarter's 9.7 percent, and the 2010 fourth quarter's 9.8 percent.
Li Pumin, Spokesperson for the National Development and Reform Commission (NDRC), said it is a self-steered slowdown. This follows the path of the government's macro-regulation, which aims to shift the economy to a more balanced growth pattern from the current investment-led pattern.
"China's economy is an investment-driven economy. Total supply exceeds total demand," said Wang Xiaoguang, a research fellow at the Policy Advisory Department of the Chinese Academy of Governance. China's retail sales grew by 14.8 percent in 2010, down from 16.9 percent in 2009. The growth decreased to 10.8 percent during the January-June period this year. Also, the growth of exports dropped below 20 percent for two consecutive months, according to NBS. "The continued moderation [in growth] is mainly caused by the insufficient demand from exports to domestic consumption," he noted.
The Consumer Price Index (CPI), the key gauge of inflation, rose by 6.2 percent year-on-year in August, cooling from a three-year high of 6.5 percent in July, NBS stated in early September. This reversed a 37-month high and, according to Fan Gang, a former senior advisor to the People's Bank of China (PBOC, also known as the central bank), indicated a soft landing for the economy.
Money supply has been excessive due to China's macroeconomic policies and currency policy in recent years, and the increasing money supply affects inflation during a long period. To soak up liquidity and curb inflation, the PBOC has raised the benchmark interest rates three times and increased the reserve requirement for commercial lenders six times this year.
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