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China Said to Start Another Boom Cycle
2004-06-12 15:27
China's economy seems to have found new engines, ready for another round of rapid growth. On the front are the automobile and real estate sectors, two most powerful darts across the country.

China's economy seems to have found new engines, ready for another round of rapid growth.

Instead of mainly relying on the expansionary fiscal policies for power, the economy appears to be gaining steam from such dynamically growing industries as automobile, real estate, telecommunication, machinery, building material, medicine, coal, and energy generation.

On the front are the automobile and real estate sectors, two most powerful darts across the country.

Consumers' buying ardor in cars and housing is just like what when people found the New World.

During the first three quarters of this year, sales of automobile rose by 58 percent. Of all the sale, 65 percent went to households, according to the Beijing-based China Economic Times.

Meanwhile, the housing sale to individuals inched up by 33.5 percent, which is 91 percent of all the houses sold out.

A self-launched take-off
On the other hand, however, the growth does not seem to borrow power from the central government's fiscal spending.

To drive away the recessive shadow in the wake of the Asian financial crisis in 1997 and to guard against a threatening deflation, China embarked on a proactive fiscal track since 1998, earmarking a treasury bond of 150 billion yuan (US$18.14 billion) per year to inject more energy into the economy.

The figure is a big shot, whose possible negative consequents, for example the "crowd-out" effect upon the private investment and its low efficiency, have been heatedly debated among the economic observers.

As a compromise, Chinese central government has refrained itself from going too far in releasing the fiscal dosage, and has controlled it at largely the same level every year since 1998.

After three years of criticism of its disappointing effect, the proactive fiscal policy seems to be paying off: The government spending is hoaxing out more non-governmental investment.

The Development Research Center (DRC) under the Sate Council, a government think tank, said in a recent report that from 2000 to the first nine months of this year, the investment by the whole society into the economy increased respectively by 8.3, 11.6 and 18 percent, despite the roughly unchanged government spending during the period.

It then concluded that non-State firms' investment sentiment is now on a quick rebound, even without the fiscal push.

Others' prediction is more encouraging.

Pointing at the 18 percent non-government investment increase, Zhang Shuguang, director of the private Unirule Economic Institute, said that China's economy is showing an unexpectedly bright momentum, signaling a new prosperity cycle.

China's entry of the World Trade Organization (WTO), the proactive fiscal policy, the central bank's cautious and steady monetary orientation, and now non-government investors' participation all seem to have negotiated a self-started round of economic take-off, according to Zhang.

Cautious reminder
There is certainly voice of caution to the pervasive euphoria.

As to the increased social investment, Wang Xiaoguang, a researcher at the State Development Planning Commission, thinks it still closely related to a fast rise of fiscal spending.

Although the annual fiscal dosage is set at 150 billion yuan (US$18.14 billion), the eventually realized investment has not reached that level at the end of every year, Wang was quoted as saying by the China Economic Times.

Plus the deposited budget from the previous year, the fiscal money put into the economy this year might well be 200 billion yuan (US$24.18 billion) rather than the usual 150 billion yuan (US$18.14 billion).

A bigger inflow of overseas capital also helps pump more money into the economy, according to Wang.

After a slowdown in 2000 and a rebound last year, foreign capital is accelerating into China this year, mainly as a result of China's post-WTO effect and the relatively uncertain world economy, Wang said.

The seemingly hot buying sentiment in automobile and housing sectors is also worth a re-consideration, according to Wang.

Anticipating a big car price cut after China's WTO entry, consumers have been waiting for a good timing for their car purchases.

So, a car sale increase this year might well mean a decrease next year, because the total consumption demand is largely the same.

As for the promising real estate sector, it may be stewing bubbles instead of a true consumption spree, Wang said.

Over the first eight months of this year, the total area of vacant houses across China increased by 14.1 percent, compared with the same period last year, up 13.2 percentage points, according to the newest national housing sentiment index issued by the National Bureau of Statistics.

Of the unsold houses, about 43.97 million square meters, which are 11.5 percent more than those of the same period last year, have been idle for over a year.

Others are warning the existing shackles upon the rising car and real estate industries.

Although the government has told people to buy their houses, the underdeveloped housing market, especially for the secondhand houses, and the unreasonably high transaction fees have dampened most people's buying desire, Liu Shijing, another DRC researcher, was quoted as saying by the newspaper.

The relatively higher consumption taxes and fee, the always narrow and congested road and the unfair treatment to non-government investment are also hurdling the full-speed run of the automobile industry, according to Liu.

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