Zhang Liqun

I. The Main Features of the Economic Situation in the First Half of the Year

With various macro-regulative measures gradually coming into force, in the first half of the year China’s economy is developing toward the expected regulative direction, which mainly includes:

1. Economic growth maintained a faster pace. According to preliminary calculation, the gross domestic product (GDP) over the first half of the year reached 5877.3 billion yuan, an increase of 9.7% over the same period of last year, and an increase of 0.9 percentage points as compared with the same period of last year.

2. A good circumstance occurred in agricultural production. The food-growing area put an end to its declining trend in five consecutive years, with the food-growing area of the whole year estimated to exceed 1.5 billion hectares, a 1% up over last year. The summer grain gained a good harvest, with the aggregate yield reaching 101.05 million tons, a rise of 4.8%.

3. Industrial production maintained a steady and fast growth. In the first half of the year, the industrial added value of the whole country reached 2982.2 billion yuan, an increase of 11.9% over last year. Of which the industrial added value above designated scale reached 2468.2 billion yuan, an increase of 17.7%, and 1.5 percentage points faster than the same period of last year.

4. The growing investment in fixed assets fell back gradually. In the first half of the year, investment of the whole society in fixed assets reached 2608.2 billion yuan, a rise of 28.6% over last year and the growing speed fell back by 2.5 percentage points as compared with the same period of last year and by 14.4 percentage points as compared with the first quarter of the year.

5. Sales on domestic market remained stable and tended to be active. In the first half of the year, the total retail amount of the social consumer goods reached 2524.9 billion yuan, an increase of 12.8% over last year and, with the price factor being deducted, a real increase of 10.2%.

6. The market prices grew in a controllable scope, and the growing momentum weakened a bit. In the first half of the year, the household consumer prices grew 3.6% over the same period of last year, of which urban consumer prices grew 3% and the rural consumer prices grew 4.6%. The consumer prices dropped by 0.1% in May and by 0.7% in June month-on-month.

7. Import and export maintained a rapid development and the utilization of foreign investments continued to increase. In the first half of the year, total import and export value reached 523 billion US dollars, rising 39.1% over last year. Of which, export reached 258.1 billion US dollars, rising 35.7%; import reached 264.9 billion US dollars, rising 42.6%. With the import offsetting export, the deficit reached 6.8 billion US dollars. In the first half of the year, the contractual amount for direct foreign investment reached 72.7 billion US dollars, rising 42.7% over last year; the actually used amount reached 33.9 billion US dollars, rising 12.0%. The foreign exchange reserve continued to increase. By the end of June, the national foreign exchange reserve reached 470.6 billion US dollars, an increase of 67.3 billion US dollars as compared with the beginning of the year.

8. Income of the urban and rural residents grew faster. In the first half of the year, the per-capita disposable income of the urban and rural residents reached 4815 yuan, rising 11.9% over last year and, with the price factor being deducted, a real growth of 8.7%, and the rising level grew 0.3 percentage points as compared with the same period of last year. The per-capita cash income of the rural residents reached 1345 yuan, rising 16.1% and, with the price factor being deducted, a real increase of 10.9%, and 8.4 percentage points faster than the same period of last year. It is the year with the best cash increase since 1997.

II. The Economic Movement May Continue to Fall Back in the Latter Half of the Year

The focal points under the control of the macro-regulation having started in the later half of last year include land development and rent approval by the local governments as well as the fund supply by the banking sector. Not only is the aggregate supply of those elements being regulated, but also the input areas are regulated (The industries whose development is controlled are determined). Not only are economic measures being used (such as adjustment of deposit reserve fund rate and strengthening of public market operation), but also the administrative measures are being used (which requires that the localities should maintain consistency with the central government and should make direct examination of the loans provided by the state-owned commercial banks and make a thorough checkup of the investment projects). The mechanism is to control the supply of such key elements as land and fund through economic and administrative measures, coupled with the direct management of the investment in part of the industries, to restrain economy from growing on its own and to relieve the force from the low-cost rapid expansion. These measures scored remarkable results in controlling economic low-cost rapid expansion.

First, the macro-regulative and administrative measures after April have been enhanced a bit, setting comparatively strict demands on the unification of government decrees, and the regulation has gone deep into specific industries and has concerned investment and loan projects, and the space for independent conducts of the local governments, banks and enterprises has obviously shrunk. Supply of the key production elements such as land and fund has slowed down. Expectancy of the policy environment by various kinds of micro-entities has begun to deteriorate. Second, the market supply and demand is shifting from partial shortage to generalized surplus. Since last year, the supply-demand situation of the products in short supply, mainly including foodstuff, steel products, cement and nonferrous metals, has been changing. On one hand, it is because supply has grown fast, on the other hand, it is because the growth of demand has slowed down (It is mainly the supply of foodstuff that has increased.). After March, the market expectancy for these products has successively changed, the stock-releasing has begun to increase, and the price level has also begun to fall back evidently. Such a change will have influence on the activities for expecting or curbing various kinds of micro-entities to expand production and to increase investment. Third, growth of money supply and investment has slowed down, thus dragging behind economic growth and commodity prices. It is estimated that such a situation will further show up in the later half of the year. Therefore, the economic growth rate and the price level will continually tend to fall back. Fourth, the upgrading of the consumption structure has begun to appear stable, and the growth of sales of houses and automobiles tends to get steady gradually, weakening its drive for the industrial upgrading. Fifth, China has begun to enter into the down-going period of the inventory investment cycle. According to previous experience, the first half of 2004 should be the peak time for the cyclical fluctuation of the inventory investment. It is estimated according to the model that growth of inventory investment will fall back a little in the third quarter and negative growth of inventory investment will turn up in the fourth quarter.

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