Beijing charting a safe course

Beijing charting a safe course

please download here: ChinaDaily_2010.6.18.pdf


The data released by National Bureau of Statistics (NBS) last week for May displayed mixed economic indications. The 48.5 percent robust increase in exports, far exceeding the 32 percent growth widely expected by the market, quickly seized the market spotlight. However, the strong growth is likely to falter in the months to come, with demand from Europe expected to decrease gradually as a result of the weakened euro. Concurrently, the Consumer Price Index surged 3.1 percent. It is interesting to see how some of the Western media linked the export data with the rising CPI to expatiate on the possibility of an overheating mainland economy and increasing pressure on Beijing to allow appreciation of the Yuan against the US dollar.

According to the NBS, housing and food prices surged 5 percent and 6.1 percent, respectively, for the month of May. On the other hand, although new home sale prices for the 70 major cities grew 0.20 percent last month, overall residential properties sold slid 16 percent, while the total transaction amount fell 25 percent compared with April. The Central Government’s macro policies adopted to contain the overheating sector are paying off, so the housing prices should not post any imminent threat of in the near future.

The surging food prices are perceived as temporary as natural disasters, such as droughts causing a decrease in supply in the first five months of the year. Middle and lower-income family groups in the countryside are most vulnerable to rising food costs, so prices and pricing controls should be considered by the Central Government to protect their livelihoods through subsidies. Further agriculture planning and environmental controls should provide a medium to long-term solution to the challenge of maintaining a stable food supply while tackling the rising food prices problem.

The wage problems recently making headlines are leading to rising concerns about their effect on inflation and other aspects of economic performance. However since average monthly wages for factory workers are relatively low compared with elite professionals working in major cities, the impact of raises on the overall economy should be limited. More importantly, with the GDP of China continuing to climb, and to ensure a better balance in the distribution of wealth as part of the goal of building a harmonious society, wages of workers have to catch up at a healthy pace. The Central Government, for its part, could have policies providing subsidies or tax relief to ease the burden of the manufacturers and exporters.

With the cooling of the housing market, the government should be able to contain inflation within the approximately 3 percent levels this year.

Given that the European crises will most certainly impact the mainland’s exports, it is unlikely that the People’s Bank of China will raise interest rates in the near future.

The Central Government has delicately and successfully maneuvered the economy, steering away from perilous shoals, viz., inflationary pressure and currency instability, without posing any threat in the near term. Indeed, inflationary pressure has significantly eased compared with the first quarter.