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Chinese Growth: 9% a Little High, 8% Desirable, and 7% no Big Deal

Aug 15 , 2012
  • Tang Min

    Economist & Counsellor of China's State Council

Different opinions have been observed as the figure of GDP for the second quarter in China —7.6% had been released. Optimists see the glass is half full, believing the growth rate is even better than expected; however, pessimists think it half empty, claiming it’s the very start of Chinese economy’s hard landing. As far as I am concerned, I believe, as the title has implied, “9% of the growth rate is a little high for China, 8% is desirable, and if it slows down to 7%, it is still no big deal”, given the economic situation at home and abroad.

Recently, the International Monetary Fund (IMF), again, has lowered its expectation of economic growth for almost every country. As the impact of the Euro Zone crisis lingers on, some governments will still be squeezed by their colossal debts. Furthermore, fiscal cliff has landed the US on greater uncertainties. Due to those economic turbulences, the growth of all emerging markets around the globe has been slowed down remarkably.  China is also undergoing a big readjustment in its real estate market. From the viewpoint of the international experience, as the real estate industry is the pillar industry which has a direct bearing on many industries and fields, a housing crash tends to bring about an economic crisis, be it the Asian financial crisis, the US’s subprime crisis, or the current Euro Zone crisis. If we are to prevent the real estate bubble from expanding and avoid an uncontrollable disaster, we need to bring the real estate market to a soft landing, because if we take a close look at the economic data with a downward trend, we can notice that all of them are related to the decreasing trend of investment in the real estate market. If we want to regulate the housing market, we are bound to shoulder the economic slowdown, because you can't have your cake and eat it too. It’s unreasonable to expect a decreasing house price and economic growth at the same time.

Another thing we need to keep an eye on is to prevent the resurgence of inflation. We should be clear that the current deflation is fragile, and 70-80% of China’s inflation is caused by the increase of food prices. Recently, the US is suffering from a drought that has been never seen for 25 years. The UK has witnessed its gravest drought in 30 years, and France has to take water use restrictions in almost one-third of its land. Meanwhile, Germany, Europe’s second largest producer of wheat, has been forced to lower its wheat production by 10%. According to an article in “Financial Times”, the world economy is at high risk of meeting a third food inflation shock. The shortfall in the food market has lead to the fluctuations in the food prices. The price of corn has increased by 31% in some places, while in Chicago, it jumped by 41%.

From another point of view, the reason we have to maintain a high growth rate is that we are concerned about unemployment. However, current situation is that the whole country is still in labor shortage. Enterprises cannot find enough hands to work and wages keep soaring. Under this circumstance, the excessive economic growth only deteriorate the labour market, worsening labour supply and leading to pay rise. And this rise, in turn, would increase the wages for rural casual labour and give birth to the price hikes for China’s agricultural products.

Therefore, no matter from which viewpoint, our economic growth is hard to come by and it should by no means be too fast currently. In particular, government should never pull it by infusing too much macroeconomic impetus.

Given the above-mentioned conditions, as long as the growth rate for the second half of the year could be above 8%, we can guarantee an 8% GDP growth in 2012. In 2011, China’s total GDP reached 46 trillion yuan. That is to say, we need only to increase our economic growth rate by 0.5 percentage point, or 120 billion yuan. If the monetary policy could be a little loose in fixed asset investment, the increase would not be difficult to obtain. Consequently, there is no reason for us to take too much policy intervention.

In addition, we should let go of the different international opinions, if there is any. Certain people always hope China to drive the world economic growth. Few people find fault with some countries’ lowering economic growth, while they would make a fuss about China’s slightest economic slowdown, repeatedly signaling that Chinese economy will get a “hard landing.” These arguments about China’s “hard landing” have never make a clear definition about it, whether it’s negative growth, zero growth, or a 4% growth? People with the least common sense would know that China’s hard landing is by no means possible. If they should define the 7% growth rate as a hard landing, then it will be the most absurd thing I’ve ever heard of. Against the backdrop of world economic downturn and every country trying hard to deal with its own affairs, China has no capacity or obligation to drive the world economy. And China has fulfilled its responsibility to maintain a 7-8% economic growth rate.

Looking forward, even perceived over the medium term, we should not imagine a double digit growth rate  appeared in the past. Under the impact of a series of policies, coupling with the ongoing income distribution reform, labour income will grow faster. If we don’t take a prudent monetary policy accordingly, it will bring about inflation, which in turn would hinder economic development. Furthermore, a loose macro economy can leave more room for our future structural reform. Therefore, my opinion — “9% of growth rate is a little high for China, 8% is desirable, and if it slows down to 7%, it is still no big deal” should be an appropriate growth target for a period of time.


Tang Min, an economist, is now Counsellor of the State Council, Executive Vice-chairperson and President of YouChange University

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