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Better than expected

(China Daily)
Updated: 2008-07-18 07:31

In spite of severe natural disasters, credit tightening and weaker external demand, China's economic growth cooled in an orderly way in the first half of the year to a more sustainable level.

Latest statistics show that China not only slowed its economic growth from 10.6 percent in the first quarter to 10.1 percent in the second but also brought down its headline inflation from a 12-year high of 8.7 percent in February to 7.1 percent in June.

The former confirmed a steady decline of China's growth after peaking in the second quarter of 2007, as a result of the country's continual endeavors to prevent the economy from getting overheated. And the later may indicate a critical initial victory in China's fight against soaring inflation, which is particularly important as the world economy is increasingly gripped by rising inflation.

More encouragingly, growth figures demonstrated that the country's efforts to re-engineer the economy away from its reliance on investment and export for growth, allowing consumption to take up the slack, are paying off.

While fixed investment growth remained stable and net export shrank due to a slowdown in aggregate global demand, retail sales rose 23 percent in June from a year earlier, the fastest pace since at least 1999. If growth in consumer spending can continue to run at such a healthy clip, it is likely that China can fix some structural problems threatening its long-term economic growth.

Clearly, such sound performance and favorable structural changes of the Chinese economy are quite unexpected in a year that began as the toughest one in a decade. Domestically, snowstorms in winter, a deadly earthquake in May and flooding in summer have all disrupted production and inflated prices. Internationally, rocketing oil prices and a US-led global slowdown have bitten deep into the profits of Chinese exporters.

The Chinese economy has weathered all these difficulties. The hard-won result should certainly be credited to policymakers who have been struggling to strike a balance between high growth and inflation.

However, the success of macroeconomic control in the first half-year does not guarantee smooth sailing for the Chinese economy in the second half.

One problem arising in the horizon is that producer prices climbed 8.8 percent in June from a year earlier. The high producer prices number points to the potential risk of inflation in the coming months.

Yet, the more imminent challenge is to determine if and when the current tightening measures should be adjusted to maintain the economic growth momentum without fuelling inflationary pressures.

(China Daily 07/18/2008 page8)