official statistics said Chinese economy cools off


Updated Mon, 27 Jun 2005 00:00:00 GMT

With declining investment growth and a low inflation rate in April and May, some economics experts, discussing whether the Chinese economy was overheating early this year, are now concerned about its cooling-off.

    Though the scene might be too dramatic to believe, official statistics indicate that Chinese economic growth is slowing down.

    The Consumer Price Index (CPI), a leading inflation indicator, increased by a moderate 1.8 percent year-on-year in April and May. Fixed Assets Investment (FAI) grew 26.4 percent in Jan.-May period, 8.4 percentage points lower as compared with a year ago, mainly pulled down by the dropping real estate investment growth. China's recent trade friction with the United States and the European Union hindered the growth of China's export.

    "It is true that the major two engines fueling the Chinese economy, investment and net export, have both seen their growth decline, but that does not signal a general cooling-down," Dr. Wang Xiaoguang, with the Economic Institute of National Development and Reform Commission, China's economic planning agency, told Xinhua.

    "China's FAI grows too fast at this time last year, especially real estate investment, arousing widespread concern for an overheated economy. After a series of macro-control measures, the current 26.4 percent growth is expected by the central government," said Wang.

    Xu Lianzhong, an expert with the Price Monitor Center of the NDRC, said that the current FAI growth is in the range of healthy growth, and able to drive up the economy by the anticipated 8 percent.

    "Speaking of the 1.8 percent CPI growth, it indicated less inflation pressure," acknowledged Xu. "The Chinese economy is entering a phase of fast growth and low inflation."

    As for export disputes, Xu said that they could be resolved through negotiation. Yet nobody can tell how much the influence might be.

    There is another hidden factor driving up the Chinese economy, often ignored by overseas experts, said Xu. "The enthusiasm of the local governments to develop."

    "To pursue better evaluation of their work, they will not let local economy cool down," said Xu. "They are inspired to continuously explore new economic growth points."

    Both experts agree that due to the macro-control measures, which have been in place for one year and a half, the Chinese economy is now experiencing a "soft-landing" and heading for healthy development.

    China's economy bid farewell to the five-year-long deflation in 2003, embracing a new round of economic growth. But following that, the bank loans increased dramatically, investment rocketed and a power crunch occurred.

    To avoid abrupt economic changes, China took a batch of macro-control measures to rein in growth some overheated sectors at the beginning of last year, prolonging this round of economic prosperity.

    China's ongoing macro-control measures cut down overproduction in some sectors and reduced the possibility of deflation in the future," said Wang.

    Though Wang and Xu said that China is not at risk of deflation at the moment, they voiced their belief that the central bank should consider taking some precaution measures, like relaxing its money supply.

    The growth of a broad money supply M2 in China, which covers cash in circulation and all deposits, quickened slightly to 14.6 percent in May over 14.1 percent in April. However, China's target for M2 supply growth is 15 percent this year.