Ren Xingzhou, Institute of Market Economy of DRC

Research Report No.013, 2005

The year of 2004 was a year of extraordinariness. In the beginning of the year, the excessively rapid growth of investment gave rise to the partial overheating of the economies, with some new and outstanding issues appearing in the economic performance. Aiming at those issues, the Central Committee of the Chinese Communist Party and the State Council grasped the major contradictions, resolutely adopted a number of macro-control policies and measures, restrained the momentum of the excessively rapid growth of part of the industries, curbed the unhealthy and unstable factors in economic performance and avoided the drastic rise and fall of the economies, thus strengthening some of the weak links, with the national economy maintaining a good developing momentum as a whole. It has been proved in the practice that those macro-control measures were timely and effective. nevertheless, it must be seen that some deep-going issues in the market functioning have not been solved radically, for instance, the mechanism triggering off the excessive growth of investment has not been put into good order and the radical restricting elements in the development of agriculture and the increase of food stuff have not been completely rid of, the tense situation in energy supply, basic raw materials and transportation has not been radically alleviated. All those issues will further restrict China’s economic development.

I. Basic Appraisal of the Market Situation in 2004

1. Overall appraisal

In 2004, market operation was sound on the whole. Changes of the major economic indicators were basically confined to a reasonable area and to a bearable or controllable scope. The main bases are:

(1) The national economy was growing in a steady and rapid way and the economic indicators continued to improve

In 2004, the gross domestic product (GDP) amounted to 13651.5 billion yuan, a rise of 9.5% over last year. Industrial production grew in a steady and rapid way. The industrial added value for the whole year reached 6281.5 billion yuan, rising 11.5% over the previous year, of which added value of the scale industries grew 16.7%, with the increment speed reducing a little bit as compared with last year. Production and sales rate of the scale industrial enterprises reached 98.1%. Economic benefits continued to improve and, after profits and losses being offset mutually, the industrial enterprises realized a total profit of 1134.2 billion yuan, topping 1000 billion yuan for the very first time, rising 38.1%. It can be seen from the major indicators for economic benefits that from January through November the contribution rate of the total industrial assets was 12.11%, a rise of 12 percentage points as compared with same period of the previous year, and the turnover rate of the floating assets was 2.11 times, an acceleration of 0.19 times over the same period of the previous year. On the whole, the national economy was growing in a steady and rapid way and the economic indicators continued to improve.

(2) The momentum that investment in fixed assets was overheated was contained, and investment structure was more or less adjusted

In 2004, investment in fixed assets showed a"high-falling-steady"momentum of growth. In the first two months, growth of investment in fixed assets in cities and towns reached as high as 53%, nearly 20 percentage points higher than the same period of last year, with the growth in the first quarter reaching 43%. In April, after implementation of the macro-control measures by the Central Government, the level of increase in fixed assets fell gradually and down to 28.6% in the second quarter; the growth level was 27.7% from January till September. Investment in fixed assets of the whole society from January to December was 7007.3 billion yuan, with an increase of 25.8% as compared with the same period of the previous year ( Of which, investment in fixed assets in cities and towns amounted to 5862 billion yuan, rising 27.6%; investment in rural areas rose 17.4%. ), with the increment speed falling 1.9 percentage points over last year, which showed a downward trend in a gradual and steady way in the whole year, and the increment speed fell to 20.4% in December. At the same time, the investment structure improved. Investment in the primary industry changed from the fall of 19.6% in the previous year to the increase of 20.3%; investment in the secondary industry grew 38.3%, falling 8 percentage points after the rise over the previous year. Increment speed of investment in part of the excessively growing industries, such as iron and steel, cement, aluminum industry and real estate development, etc., declined drastically. Increase of the investment in non-metal minerals manufacturing industry fell 38.5 percentage points after the rise, increase of investment in black metal mining and selecting, smelting and mangling and processing industries fell 65.5 percentage points after the rise, and increase of investment in nonferrous metal mining and selecting, smelting and processing industries fell 43.5 percentage points after the rise. Investment in agriculture and energies was intensified. It can be seen from the structure of investment areas that investments in central and western regions rose 32.9% and 29.3% respectively, higher than the investment growth rate of 26.1% in the eastern region.

(3) Money supply and the credit control objectives set down in the beginning of the year were basically realized

In the beginning of 2004, in the light of the decisions made at the economic working conference of the Central Government, the credit control objectives of M2 to grow 17% and a loan of 2600 billion yuan to be added in the same year were put forward. Focusing on issues of partial overheating of the economies and the excessively rapid growth of credit, the Central Government adopted a number of monetary control measures, which brought about obvious effects. According to statistics, as of the end of December of 2004, balance of M2 supply had reached 2530 billion yuan, rising 14.6% over the same period of the previous year, with the growth level falling 5 percentage points after the rise against the end of last year. Balance of M1 supply had amounted to 9600 billion yuan, rising 13.6% as compared with the same period of last year. Balance of the money in circulation on the market (M0) had arrived at 2100 billion yuan, rising 8.7% over the same period of the previous year. Amount of the accumulative net cash input all year round had amounted to 172.2 billion yuan, with 74.6 billion yuan less than the same period of last year. On the whole, growth level of the broad money supply was 2.4 percentage points lower than the controlling objective in the beginning of the year, having fallen back into the reasonable area.

Loans from financial facilities grew in a basically proper way. As of the end of December, balance of the Renminbi loans from all financial facilities had reached 1770 billion yuan, rising 14.5% over the same period of last year. Loans in the whole year rose 2260 billion yuan (340 billion yuan less than the controlling objective in the beginning of the year), of which, short-term loans increased by 491.9 billion yuan, and medium and long-term loans increased by 935 billion yuan. As a whole, macro-control policies and measures achieved remarkable success, financial functioning in the whole year advanced in a sound and steady way, and the anticipated money credit controlling objectives were basically realized.

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