June 18,2009

State Council: Listen Up! Economic Recovery is Looking Rosy!

By CSC staff, Shanghai

"Favorable conditions and active factors for the economic development are growing, and the overall situation is stabilizing and becoming better," deemed the State Council on China’s current macroeconomic situation during a meeting yesterday presided over by Premier Wen Jiabao. Perhaps not surprisingly, such a judgment triggered not a few disputes.

The State Council stated that now is a crucial period for the stable recovery of the Chinese economy, and that China should unswervingly adhere to its positive fiscal program and properly loosened monetary policy.

Information revealed at the meeting was more active and optimistic than the "situation is better than earlier expectations" judgment made at an economic analysis meeting the Council held on April 15. At that meeting, it was thought the basis for China’s economic recovery was still not solid counting the severity of both the internal and external environments. However, this time’s was gentler. "The basis for economic rebound is not entirely solid, and there are uncertainties. Enterprises in some areas and industries are still in difficulty, and the external environment is still quite tough."

A downturn in industrial growth and lack of willing investment among the general public, mentioned on April 15, did not figure into this meeting. Industrial growth in May was 1.6 percentage points up over April’s. Some experts believe that as firms?inventories are gradually falling, even higher growth is a possibility.

National Bureau of Statistics (NBS) figures show industrial growth reached 8.9%, investment growth 38.9%, and consumption growth 15.2% in May, each the highest in the past 12 months.

Some Chinese officials, NPC deputies and domestic and overseas economists gravely doubt the reliability of the NBS figures. They say that the negative growth reported in power generation, exports, and CPI in May indicates production surpluses and low investment in private enterprise, and that bank loans have flowed into the real estate and stock markets, boosting asset prices instead of fully entering the real economy.

The NBS responds that the main reason for the high industrial growth numbers was accelerated growth in heavy industry and the lower base in 2008 due to the Sichuan earthquake.

While some economists question the May statistics, others accept them. They think May’s high year-on-year investment numbers may also be due lower levels reported by local government last year. But even after being adjusted, these economists think, investment growth should still be quite high.

The optimists about China’s economy think the present decline is mainly due to the external environment, not lack of internal motivation. China’s growth pole has not been consumed, and infrastructure construction demand led by urbanization will still be the motive force for China’s economic growth in future.

The People’s Daily, the mouthpiece of the Communist Party, even declared in an article that after concluding the recession period in 2009, China will enter a seven-to-eight-year expansion period.

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