Zhang Liqun

I. Basic Features of Economic Performance in 2006

Since 2006, economy has grown at a higher level and tends to accelerate; there has been a booming demand on Chinese domestic market, investment has increased faster and consumption has been more vigorous; foreign trade surplus has expanded continually and the net external demand has risen. After the macro-control over a quarter of the year, acceleration of economic growth has been brought under control, and growth of investment has fallen. To sum up, economic performance has appeared stable at a higher level. It is predicted that the economic growth rate for the whole year will remain around 10.5% and the household consumer prices will grow at a rate of 1.5% or so.

1. Economic growth remained stable at a higher level.

In 2006，the Chinese economy continued its higher growth，GDP grew 10.7% year-on-year, with the growth rate rising 0.3 percentage points over last year. In view of the economic growth track within the year，the change of declining after rising took place. During the first quarter till the fourth quarter, GDP growth rates were 10.4%、11.5%、10.6% and 10.4%, respectively. All in all,，the overall level of the economic growth was higher than last year, remaining stable at the higher level.

2. Investment fell after rise at a higher level.

In 2006, fixed asset investment of the whole society amounted to 10987 billion yuan，up 24.0% against last year，with the growth falling 2 percentage points. Of which, fixed asset investment in cities and towns amounted to 9347.2 billion yuan，up 24.5%，with the growth falling 2.7 percentage points. In view of the change of increase in fixed asset investment in cities and towns，the rate was 29.6% from January to April，30.3% from January to May，31.3% from January to June，30.5% from January to July，28.1% from January to September，and 26.6% from January to November, showing the features of declining after rising and falling down at the high level.

3. Consumption continued to be vigorous.

In 2006, total retail value of social consumer goods amounted to 7641 billion yuan，up 13.7% against last year，accelerating 0.8 percentage points. In view of the change of increase in total retail value of the social consumer goods，the rate was 13% from January to April，13.2% from January to May，13.3% from January to June，13.4% from January to July，13.5% from January to September，and 13.6% from January to November，showing a momentum of continuous increase. Of the total retails of the wholesale and retail goods above designated quotas all the year round,retail of crude oil and oil products rose 36.2%，retail of automobiles rose 26.3%，retail of building and decorating materials rose 24.0%，and retail of communication equipment rose 22.0%. There was a vigorous upgrading of consumption structure.

4. Foreign trade surplus widened continually.

Total import and export value within the whole year amounted to 1760.7 billion US dollars，up 23.8% against last year，accelerating 0.6 percentage points. Of which, export value reached 969.1 billion US dollars，up 27.2%；import value reached 791.6 billion US dollars，up 20.0%. With import and export volumes offsetting each other, trade surplus amounted to 177.5 billion US dollars，increasing 75.5 billion US dollars against last year.

5. Commodity prices rose by a small margin.

Household consumer prices within the whole year rose 1.5%，falling back 0.3 percentage points against last year. Purchasing prices for raw materials, fuel and motive power surged 6.0%，declining 2.3 percentage points over last year. Ex-factory prices for industrial products grew 3.0%，dropping 1.9 percentage points against last year. Fixed asset investment prices rose 1.5%，down 0.1 percentage point over last year.

6. Profits of industrial enterprises increased and economic benefits improved.

In 2006，industrial enterprises above designated size throughout the country realized a profit totaling 1878.4 billion yuan，up 31.0%.

To sum up, economic growth presented a pattern of growing fast, with low commodity prices and improved economic benefits.

II. Prospects for the Economic Situation in 2007

All in all, world economy will still maintain a rapid growth in 2007. A report in the latest Prospects for World Economy of IMF has predicted that the world economy will grow 4.9% in 2007，falling 0.2 percentage points against 2006. Whereas it can be seen from the predictions of various major institutions that in 2007 growth rate for world economy will stand around 3.9%－4.9%，still standing in the most powerful period for the growth since 1970s. External conditions for Chinese economic development will still be good.

According to Chinese domestic conditions, analysis of several important questions is necessary.

1. Potential growth rate for Chinese economy will remain at 10% or higher.

Potential economic growth rate refers to the sustainable economic growth rate possibly obtained by a country under the given available technologies and resources as well as the realized full employment without triggering inflation. During 2003－2006，GDP growth rate of China were 10%,10.1%,10.4% and 10.7% respectively，always remaining above 10% and slightly increased；at the same time，commodity prices went down gradually. During 2004－2006, household consumer price indexes grew 3.9%,1.8%, and 1.5% respectively；ex-factory prices for industrial products grew 6.1%,4.9% and 3.0% respectively. Compared with the potential growth rate，it can be thought that to date the economic growth has never surpassed the potential growth rate and, in terms of employment, the economic growth rate should be still higher. As a result, how to figure out China's current potential economic growth rate has become an important question for the correct judgment of the economic performance.

In 1996, when China succeeded in realizing the " soft landing " of its economy, there existed a consistent cognition that the potential growth rate of the Chinese economy remained around 7－8%. But later, the insufficient demand and overcool economy that came into being during 1998－2000 proved that the economic growth rate of 7－8% is on the low side against the present development in China, especially against the enormous pressure of employment（the average annual economic growth rate during 1998－2000 was 7.96%). Around 2001－2006，the average annual economic growth rate was 9.7%，going up 1.74 percentage points against 1998－2000，accordingly，the household consumer price index grew from －0.6% to 1.37%. On the whole, such a change was positive，quickening economic growth，and with no evident inflation appearing. It can be thought that the potential growth rate of the Chinese economy is around 10%. If in consideration of the current social fund surplus（prodigious amount of bank deposits，huge amounts of foreign exchange reserve, etc.），labor surplus（a huge pressure of employment），and the good technical elements to support the production capacity；and in consideration of the ability for market adjustment and supply growth being heightened（also the ability of the enterprises being enhanced in independent development），it can be thought that the Chinese potential economic growth rate should be slightly higher than 10%.

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