—Analysis on 2010 Economic Performance and Prospects for 2011

DRC Task Force on Analysis of Economic Performance

Since the beginning of the year and with the implementation of a series of macro economic policies, soaring commodity prices are getting stabilized, asset bubbles are being reduced, and economic growth falls back quarter on quarter while still keeping a high growth rate, the economic performance has resumed its normal growth. The year of 2011 is the first year of the 12th Five-Year Plan period, the environment of external development is slightly better than that of last year and both domestic investment and consumption will witness a fast growth. It is estimated that the economic growth since the second quarter will display a stable rebound, reaching around 9% annually. While keeping a smooth implementation of the macro economic policy, the government should actively promote reforms in relevant fields, accelerate the adjustment of economic structure and the transition of development mode, so as to lay a solid fundament for a stable development of economy in the mid- and long run.

I. Economic Performance Is Back to Normal

Compared with the financial crisis solution at the beginning of this year, active changes have taken place in the dynamic structure of economic growth, forming a sound pattern in which investment, consumption and export jointly push forward the market-driven economic growth. At the same time, the soaring commodity prices have become stabilized, and the risk of asset bubbles has been reduced. It shows that economic performance has made major progress resulting from addressing issues arising from the international financial crisis and turned to the right track of normal growth.

1. Growth of domestic demand turns from policy-led promotion to market-driven growth

The power of investment growth realizes market replacement. In the year of 2009, China's economy swiftly reversed the downward trend and this is mainly due to the economic stimulus package. Among all, the government-led fast expansionary investment played an important role. Since the fourth quarter of last year, the government-led investment growth has been on gradual decline, and the market-driven investment has become the primary impetus to growth. In the investment in fixed assets from January to August this year, government budgetary and state-owned enterprise' investments only increased by 11.5% and 20.33% respectively, while the amount of investment in last year were as high as 82.7% and 49.72% respectively; the investment by domestically-funded enterprises and non-state-owned enterprises grew by 29.63% which was slightly lower than the level in last year (30.5%); the investment in property market which mainly relied on market drive enhanced by 36.7%, which was far higher than 12.5% of last year. In the first eight months, the investment in fixed assets rose by 24.8%, resulting mainly from high-speed growth in investment of real estate development and private investment.

Consumer growth keeps strong. In dealing with the financial crisis, the stimulus economic policies implemented by the Chinese government have brought about tangible results. With the booming market of cars, home appliances, furniture and tourism, the total volume of social consumer products in 2009 actually increased by 16.9%, after allowing for retail prices, hitting an all time high. Since this year, both dynamics and efficiency of policy stimulus measures were weakened, public finance expenditures in people's livelihood including social security, employment, medical treatment and public health all witnessed a fall by a big margin year on year. Although the actual growth in consumption was dropped, residents' consumption motive is still on the rise. Since February, the actual growth of gross retail sales of social consumer goods has been stabilized at a high level, nearing 15.2%.

2．Export resumes swift growth with increasing share in global total

Driven by global economy's rebounding and increased external demand, China's export growth went beyond the expectation since beginning of this year. The monthly export value reached 110 billion US dollars after February; the accumulated export value was up to 989.7 billion US dollars for the first eight months, increasing by 35.45% year on year, while being 50.4 billion US dollars higher than the number in 2008 before the global economic crisis. China's export share still keeps increasing in the whole world, accounting for 8.9% in 2008. Although, China's export was severely impacted in 2009, its drop is still much lower than the global average standard, then the share was on the rise again, enhancing to 9.7%. And it is hopeful to break through 10%, nearing the peak values of Germany's and Japan's shares in the world before.

China's export has resumed the high-speed growth and the share of China's export in the world continues to increase. The main reasons are:, One, emerging economies and developing countries occupied more than 50% export market, they were slightly impacted by financial crisis and still keep fast economic development, their growths in import were higher than that of developed economies. Two, the international marketing competitive edge among private enterprises had become sharper, and the export growth of enterprises in other types which were primarily based on private enterprises was obviously higher than that of state-owned enterprises and foreign-funded enterprises. Three, the Chinese government raised export rebate rate, increasing export credit, providing export enterprises with more favorable measures including financial supports, so as to alleviate the impact of financial crisis to export-oriented enterprise's production capacity, then majority of enterprise's production was bounced back, and parts of orders were shifted to China.

3．Soaring commodity prices get stabilized with reduced risks of asset pricing bubbles

Impacted by natural disasters such as unusually cold spell in early spring, flood threat and price inflation of agricultural products in international market and other factors, consumer prices of households in first eight months obviously witnessed the fluctuant increasing process, reaching 3.5% in August, but currently, it has already shown a stable trend. Internationally, the world economic recovery was slowed down with prices of bulk commodities being relatively lowered, but the pressure of imported inflation was finally alleviated. Domestically, although grain output was slightly cut this year, it is abundant in the storage and strong in regulation capacity with prices for parts of agricultural products being almost close to and even higher than prices in international market, it is impossible for grain prices to rise potentially. Since this June, the pork prices increased in off season, hog/corn ratio was higher than break-even point. Although the prices of pork in fourth quarter were on the rise, the growth of consumer prices of households will not be higher than the reduction of the carry-over effect of last year's price changes.

The effects of regulation measures in real estate markets were also primarily displayed with the fast soaring housing prices being curbed. Currently, although both the sales volume and housing prices in some cities were rebounded to some extent, the sales area of commercial residential buildings have posted a negative growth since May, some developers have been pressed hard by the shortage of funds and the stock is obviously on the rise, it is estimated that the housing prices will be dropped at the end of this year, but it will also rebound to some extent. Besides, money credit supply has already returned to the appropriate growth level, both overheated economy and inflation expectation are on a decline with lowered risks of asset pricing bubbles.

In general, since the beginning of this year, the impetus of domestic demand growth turned from policy promotion to market driven with the export being promoted at a fast speed, indicating that China's economic performance has successfully broken away from the negative impact of global economic crisis, and begun to embark on the right track of regular growth. The adjustment of high growth is determined by the intrinsic need of the economy and also affected by active policy regulation. Due to the decreased investment in real estate industry, it will drag the growing momentum of total investment to fall; the export growth was on the decline month by month after May affected by the slow recovery of world major economies, and China's economic growth in third and fourth quarters will make a turnaround by a small margin in each quarter. It is estimated that the annual economic growth will be around 10%.

…

If you need the full text, please leave a message on the website.