Xie Fuzhan, Liu Shijin, Lu Zhongyuan, Zhang Liqun, Li Jianwei

DRC Task Force

Economic perspectives No 11, 2004

I. Significant Features of Economic Growth of 2003

1. Economic growth enters a new round of booming period

During the first three quarters of 2003, despite impact of SARS, GDP growth rate still reached as high as 8.5%. It is estimated that the rate will continue picking up in the fourth quarter. Predicted by monthly macroeconomic quantitative analysis model, the overall GDP growth rate of this year could reach 8.6%, which indicates that, GDP growth rate of our country is leveled off above 8% since 2002, and economic performance is in a new round of booming period.

2. A batch of high growing industries is on a robust run, and heavy industry and chemical industry are getting more and more industrialized

In the first three quarters of the year, pillar industries, such as electronic engineering equipment manufacturing, electric machinery and facility manufacturing, transportation equipment manufacturing, metallurgy industry and chemical industry realized fast growth, the devotion rate of which to the overall industry growth reached 50.7%. Increasing speed of heavy industry distinctly exceeds that of light industry. The added value of heavy industry increased by 18.4% and the latter by 13.9%. The added value of heavy industry accounts for 64.37% of the total industrial added value, which is 3.42 percentage points higher than the level of the whole year of 2002 (60.95%). Since 1998, growth of heavy industry takes on an accelerating tendency compared with growth of light industry, and the proportion of heavy industry’s addedvalue in overall industrial added value is continuously increasing, especially in this year, which exemplifies that economic growth in China has entered a new period of heavy industrialization. This period is mainly driven by pillar industries and the real estate sector, and is closely related to consumption structure with a fairly strong market endogenous mechanism, and heavy industrialization will be the main supporting power of sustainable and fast growth of Chinese economy in the next ten years.

3. Investment increases at a high speed, and consumption upgrading remains its momentum

In the first three quarters, the total social investment in fixed assets grew by 30.5%, with an increase of 8.7 percentage points. The high investment growth is mainly driven by industrialization tendency of heavy industry and chemical industry, and increasingly vigorous private investment. Under SARS impact, consumption increase decreased for a time. However, the accumulated increase rate of the first three quarters reached 8.6%, and decreased merely by 0.1% percentage point, which has recovered to the normal growth level, consequently, consumption has maintained a fairly high level of stable growth. Despite SARS impact, consumption structure upgrading tendency is obvious. In the first three quarters, the retail sales of architecture and decoration material increased by 46.6%, that of automobile increased by 77.5%, and that of telecommunications equipment increased by 74%. Consumption hot spots in house building and transportation keep on warming up.

4. Foreign trade remains a strong growing momentum and trade frictions still exist

In the first three quarters, export grew by 32.2% over the same period of last year, an increase of 12.9 percentage points, and continuously remained a high growth tendency. Import increased by 40.5% over the same period of last year, an increase of 23.3 percentage points. Consequently, favorable balance of trade decreased as compared to the same period of last year (pure export 9.1 billion US dollars, and decreased by 10.9 billion US dollars). In terms of different countries and regions, favorable trade balance to the United States and some European countries is continuously growing, while adverse trade balance to Japan, Korea, and Taiwan province is growing. Since the United States and Europe are China’s main export market, expanded trade surplus will inevitably intensify trade frictions, and anti-dumping pressure confronted with China is continuously increasing. In recent years, export-oriented manufactures in Japan, Korea, and Taiwan province gradually moved to mainland China to establish factories, which is an important reason of the expanding trade surplus of China to the United States and Europe.

5. Inadequacy of aggregate demand initially relieved, while supply of some energy resources and raw materials see gaps

As domestic market grows more active and export increasefast, the inadequacy of aggregate demand gradually relieved. The price index turned from negative to positive. In the first three quarters, household price index increased by 0.7% as compared to the same period of last year, production material price increased by 4.5%, but falling down stably by the season (respectively 4.6%, 4.7%, and 4%). Supply of electric power, coal, steel, petrochemical materials and ferrous metal see gaps. Many provinces and cities are compelled to limit electric use. Some raw material prices have gone up. Currently, supply of those products is rapidly increasing, and climbing tendency of raw material price already slowed down. On the whole, price is maintained at a low level, demand constraint universally exists, and market competition of a majority of products is still fierce.

6. Grain yield continues to drop, supply and demand relations by no means reversed

According to relevant statistics, grain yield of this year is predicted to be lower than 450 billion kilograms, and is lower than grain demand quantity of the whole year. After underproduction in several succeeding years, current market grain price takes on a recovery enhancement. Due to the fairly high stock level, it is estimated that by the end of this year grain stock will still maintain above 200 billion kilograms, which is a lot higher as compared to normal years (around 125.5 billion kilograms); on the other hand, the grain productivity is large, and grain supplies will grow quickly as driven by market demand. It is estimated that grain price and food price will not rise for a long term or by a big margin.

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