An end to the era of double-digit growth

There was a time when nobody questioned China's double-digit growth, not even in the wake of the global financial crisis in 2008.

But at a recent roundtable of economists and business commentators sponsored by the Shanghai University of Economics and Finance, that era appeared to be over as serious questions were raised about how fast the Chinese economy can continue to grow and for how long.

Attendees argued that a period of transition from export-led to consumer-led growth has begun involving an inevitable economic slowdown, and said the most effective measure the government could take would be to launch more government-led capital investment projects.

Ye Tan, a leading business commentator, described the environment for Chinese companies as being like "frogs trying to swim in warm water" - they face a long and painful death.

They are not making profits and have little idea about their future. The only thing they can do is to offer increasingly lower prices in an attempt to compete for limited orders, she added.

There is a growing cash flow problem among many companies, which are not making enough profit to pay back debts or reinvest, she said. Most of these companies used to engage in the mass production of export products but are now facing dwindling orders and a rising renminbi.

"I say China is bidding farewell to double-digit growth, because many industries will no longer be able to double their size in the course of a decade," she said.

Many companies are hoping for a large-scale domestic capital investment program as this may be the only way they can survive, she added.

According to Fan Jianping, an economist and deputy director of economic forecasts in the State Information Center, the central government has been moving to expand domestic capital investment recently.

"The central government gave approval to a dense cluster of new projects recently," he said, based on two conditions.

The first condition is that inflation remains low between the second half of 2012 and first half of 2013, potentially at its lowest for the entire 12th Five-Year Plan period (2011-15).

The consumer price index, a major measure of inflation, is expected to remain between 2 and 3 percent through this period, offering a window of opportunity for a major boost in capital spending on government projects, Fan said.

The second condition is that the approved projects must undergo rigorous feasibility studies and are listed in the 12th Five-Year Plan. They should be high-quality projects that give a boost to business activity in nearby areas.

Lian Ping, chief economist at Bank of Communications of China, said China still has long-term needs for public infrastructure development.

Public investment should not be treated as negative and prone to create a bubble, but the quality of projects should be closely watched, he said.

In the short run, in the absence of other strategies and the lack of any surge in consumer spending, public projects are a means to maintain China's growth momentum, he added.

edzhang@chinadaily.com.cn