Economist Upbeat About Chinese Economy

October 14, 2008
Pang Li

Despite the global financial crisis, Yao Jingyuan, chief economist at China's National Bureau of Statistics (NBS) expressed optimism about the prospects for the Chinese economy in an interview with China Economic Weekly.


Yao admitted the global economic situation is complex and difficult. The credit crunch in the US has led to a financial crisis. The American economy, which generates a quarter of global production, is set to slow down. The Eurozone has also been hit hard. According to statistics published on August 14 by Eurostat, Eurozone GDP declined 0.2 percent in the second quarter of 2008, the first decline since 1995.


Yao said a world slowdown will inevitably cut demand for China's exports. And the strengthening of the Renminbi is affecting China's competitive edge. Growth in exports to the USA, China's second largest trade partner, declined 5.7 percentage points in the first half of 2008.


Soaring commodity prices especially oil, which breached US$140 per barrel at one point have also badly affected China, the second largest oil consumer in the world. Last year's grain reserves amounted to just 15 percent of crop consumption, lower than the safety line of 18 percent. This triggered huge hikes in international grain prices, exerting pressure on China's domestic grain market.



But in spite of the challenges, Yao said the Chinese economy is basically healthy and drew attention to four points:


Firstly, the economy has maintained rapid growth for over three decades. In the first half of 2008 growth was 10.4 percent, demonstrating that the economy is still on track.


Secondly, there have been favorable structural changes to the economy. In 2007, domestic consumption overtook exports as the principal driver of growth. Unit energy consumption is also declining. Both points indicate that China is moving towards a more sustainable growth model.


Thirdly, the country's 39 major industries yielded good returns in 2007. And financial revenues reached a staggering 5100 billion yuan (about US$747 billion), up 31 percent year-on-year. These achievements show how efficiently the macro-economy is operating.


Fourthly, living standards are growing, due to improvements in the social security system and increases in household income.


Finally, Yao identified two priorities for the government in the second half of the year. Controlling commodity prices should remain a top priority. Despite the effects of global inflation China managed to rein in the CPI from 7.7 percent in May to 4.9 percent in August. Second, the authorities should maintain steady growth and avoid sharp fluctuations.