You would say it is absurd if you read, from any serious source, the forecast that China's GDP growth for the second half of 2008 would fall below 5 percent. For by this country's standard, growth below 9 percent can cause a lot of dislocations in the economy, led usually by massive factory closures.
"Below 7 percent is a virtual recession," as a Beijing-based consultant to a US company compared his note with me the other day. I agreed.
But how come on Hexun.com, a website and a self-appointed portal for China's emerging middle class, shows that nearly half of its viewers (more than 48 percent, as of Sunday morning) believed that China's annualized GDP growth would go down to below 5 percent in the second half of the year? While only 18 percent of them held that the figure would be above 7 percent.
It is not belief any more. It is fear. Fear cannot be explained by reason. But at a time of crisis, it is more dangerous than how its repercussions can be quantified at home.
In all likelihood, China's GDP growth for the second half of 2008 (now one month to complete) cannot be as low as the feared range, considering the fact that its GDP growth, again in year-on-year terms, was 10.6 percent in the first quarter, 10.4 percent in the first half, and 9.9 percent in the first three quarters. Anywhere close to 7 percent would be too abrupt a fall, and too wild.
In reality, there would be enough to worry about if the growth rate falls to below 9.1 percent. That would be the lowest growth in seven years, with figures in the other five years all above 10 percent.
Yet figures are not the issue now. A major problem for the economy is how the faint-hearted middle class people see their future. It does not matter whether there is any statistical evidence to back up their forecast. For them, if the figure does not happen in the last months of the year, then it probably will come somewhere in the next year.
Not just the middle class, however. Fear is contagious. By talking to their peers and their parents, canceling their holiday trips and home visits, and re-budgeting their daily expenses, the young office workers in Beijing, banking staff in Shanghai, and factory managers in the Pearl River Delta are spreading their perception of the economy across the country.
So we can see that other than heaping money on the economy - by jump-starting one big-ticket infrastructure project after another, there is still one remaining challenge for Beijing.
It would take a long while before the money spent on the infrastructure projects make a circle back to the urban consumer market. Between now and the time the stimulus package delivers its full results, there should also be incentives for the relatively affluent consumer sectors.
Protecting consumers has been a weakness in China's development, and a long annoying one, with investment in fixed assets (in which the government is the leader) overshadowing consumer spending (largely to pursue individual joy) as the largest contributor to the DGP. By one account, more than 60 percent of China's GDP in 2007 was gained from investment, and only less than 40 percent from consumer spending.
If the true picture of the economy is not as bad as many feared, then the government will have to do something to prevent consumers from tightening their belt in undue, and unnecessary ways. Announcing a multi-trillion-yuan stimulus package still cannot be of direct help.
Some people are calling for a cut in the income tax. Others are harboring the idea of government-issued consumer vouchers.
These make for typical financial stimulus. But there can be many innovations to boost consumer spending, including the government reform. Having useful regulators to enforce better product and service standards can also be very important. And it should not require so much cost.
E-mail: younuo@chinadaily.com.cn
(China Daily 12/01/2008 page4)
