Zhang Liqun

Research Report No 103, 2001

I. Basic Situation of the Macro Economy in China

Chinese economy has demonstrated a rather steady growth in 2001 on the basis of the economic transformation in 2000. The main features include: economic growth rate remains at the same level as that of 2000, price fluctuates slightly at a low level, favorable balance of international payment continues, the situation of unemployment is grim.

1. Economic growth rate remains at the same level of 2000.

The GDP growth rate in the first quarter of 2001 was 8.1%, which is slightly higher than 2000. The industrial growth rate started to decrease in April and May (see figure 1). Supposing this trend continues in June and also taking the decrease of summer grain yield into consideration, the GDP growth of the first half of this year will be expected to slow down, although it will remain close to 8%.

Meanwhile, economic performance have improved distinctly. Industrial enterprises realized 35.1% more profit from January to April than they did in the same period last year.

2. Price keeps in operation at a low level.

The accumulated consumer price index from January to May 2001 increased by 1.1% than that of the same period last year. Analysis shows that the growth is generated by increase in the prices for services as well as for vegetable, fruits, eggs, poultry and freshwater fish. Price for industrial consumption goods continued to decrease steadily. In April, price for household equipment and service, medical care and individual consumption items decreased by 0.3% and 0.1% respectively than that of the previous month. In May, with the drop of price for vegetable, the consumer price index decreased by 0.5 percentage points than the previous month. On the other hand, the ex-factory price for industrial products decreased by 0.1% in April 2001 than that of the same period last year, which means that the price has shown a tendency of decrease since it stopped decreasing and began to rise in January 2001. The ex-factory price for capital goods increased by 0.4% than that of the same month last year. The growth rate dropped by 0.6 percentage points than that in March. All the above shows that price remains to move up and down at a low level and that it is influenced mainly by non-current elements beyond the demand-supply relationship.

3. International balance of payment remains favorable.

Table 1 Balance Between Current Accounts and Capital Accounts in International Payment

Unit US$ 1 billion

Year	1995	1996	1997	1998	1999	2000
Current Accounts	1.6	7.2	36.7	29.3	15.7	20.5
Capital Accounts	38.7	40	21	-6.3	7.6	19.2

The figures in the above table show that the current accounts and capital accounts in China’s international balance of payment have, for the exception of one year, seen surplus since 1995. The balance is favorable.

The increase of import and export in foreign trade has slowed down obviously since 2001 due to the slow down of the world economy and the high figure of the previous year. Export from January to May increased by 11% with the growth dropped by 25.8 percentage points than that of the same period last year. Meanwhile, import increased by 16.3% with the growth dropped by 19.1 percentage points than that of the same period last year. The trade surplus was US$8.446 billion, which was US$2.012 billion less than the same period last year. In general, foreign trade maintains surplus and the international balance of payment remains favorable. However, it is worth noticing that the amount of surplus is getting smaller.

In terms of foreign investment, the amount of contracted investment was US$20.2 billion from January to April 2001, an increase of 38.3%. The amount of direct foreign investment that has been actually utilized was US$10.9 billion, an increase of 12.4%. Increased foreign investment has become an active element in favour of the international balance of payment.

The foreign exchange reserve of China was over US$170 billion by the end of May 2001, which was US$10 billion more than that at the beginning of the year. The exchange rate of RMB remains stable. In general, the international balance of payment has remained favorable.

4. The situation of unemployment is comparatively grim.

There are now about 16 million people entering the age for labor every year in China, of whom, about 6 million are in cities and townships. However, the average increase of annual employment from 1996 to 2000 was 5.75 million, of which the average increase of annual employment was 3.65 million in cities and townships. The increase of job opportunities is much slower than the increase of population entering the labor market. Moreover, significant restructuring took place among the employed people. Firstly, employees in the second industry moved to the service or agriculture. From 1997 to 1999, employees in the second industry decreased by 2.6 million, whilst employees in the service increased by 6.12 million and employees in the first industry increased by 6.34 million. Secondly, state-owned and collectively-owned economic units in cities and townships transferred to units of other kind of ownership. From 1997 to 1999, employees of state-owned units in cities and townships decreased by 24.72 million, and employees of collectively-owned units in cities and townships decreased by 11.71 million. Against the background of insufficient supply of jobs and significant change in employment structure, the laid-off staff and workers, along with the population newly entering the labour market as well as the floating labor force moving into cities have jointly made the situation of unemployment grim. In 2000, the number of newly increased employed population was 2.6 million, in cities and townships which was less than half of the population that has reached the age of entering the labor market. State-owned enterprises laid off 6.57 million employees in 2000, of whom only 3.61 million were re-employed. These figures show that the grim situation of unemployment has not been improved.

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