2003-2004 Analysis and Forecast of China's Macroeconomic Situation

Author: Chen Dongqi Compiler/Nationality:
Publisher:
Publishing Time: 2004-01-01
Features: Since the development philosophy of people-centered has just gained widespread recognition, it has not yet become a conscious action for many decision-makers. To correct the current tendency in many regions to prioritize growth over development, focusing solely on GDP and productivity, we must reorder the indicators for economic situation analysis and government economic performance evaluation based on the people-centered development philosophy. I believe the following order should be adopted:
1. Social Security Degree
2. Household Consumption Growth Rate
3. Full Employment Rate
4. School Enrollment Rate
5. Urbanization Rate
6. Balance of International Payments
7. Price Index
8. GDP Growth Rate
Social security is the social cost of the economic operation in the current year. If the coverage of social security does not reach 100% or the level of security does not meet basic living expenses, it indicates that the economy is operating at a loss overall, struggling with issues. In essence, development has not yet been achieved, and the GDP growth should be adjusted by subtracting the gap in social security. Social security is a function of the government. Of all the matters in the world, this is the most important. If the social security funds for the current year are insufficient, other fiscal expenditures should be postponed. Social security is the institutional prerequisite for the allocation of factors in a market economy and an important redistribution system for a socialist market economy. As long as our understanding reaches this level, money will not be an issue. Why is there money for "" (adding flowers to a flourishing garden) activities, but not for "" (warmth in the snow) activities like social security and education? Clearly, this is a problem of perception and a problem of the development philosophy.
By treating social security as an economic indicator, the expansion of its coverage and the improvement of its level in the annual economic operation reflect the increase in public goods invested by the government. This investment also creates GDP, both directly and indirectly. If the direct GDP creation follows an arithmetic progression, the indirect GDP creation will follow a geometric progression. In the current phase of economic system transformation, to truly achieve the allocation of factors, it is necessary to accelerate the adjustment of the redistribution system. Therefore, the social security indicator should become a qualitative indicator for the economic operation.
Household consumption growth rate is a dynamic indicator supporting investment and employment. According to the people-centered development philosophy, household consumption is the purpose of development and growth. The essence of development is the improvement of people's quality and the elevation of interpersonal relationships. Only when household consumption grows rapidly can investment and employment grow rapidly. Only when the structure of household consumption upgrades rapidly can the adjustment of investment structure, employment structure, and industrial structure be achieved, thereby continuously accelerating development. Therefore, we rank the increase in the quantity of household consumption and the upgrading of its structure as the second indicator for the economic development and operation.
The full employment rate indicator, the social security degree indicator, and the household consumption rate indicator are three inter economic indicators. In the current special transition period, their causal relationship is that social security degree determines household consumption rate, and household consumption rate determines full employment rate. Under normal market conditions, it is the full employment rate that determines the level of social security cost and the growth rate of household consumption. We temporarily place the full employment rate as the third indicator, but in the future, it should hold a qualitative position.
According to the people-centered development philosophy, the essence of development is human development, and the essence of human beings is the sum of social relationships, with the most fundamental and important social relationship being the labor relationship and employment relationship. Employment is a critical issue related to people's right to survival and development. If a person is unemployed, the gap between them and society increases, interpersonal relationships become unhealthy, and their social nature degrades. Regardless of how high the social security degree is, the conflict between the unemployed and society will increase, leading to marginalization or even alienation of the unemployed. If a country experiences high-speed GDP growth with rising unemployment rates, social crime rates will also rise, indicating that the production and distribution methods of GDP have problems, and the government is severely lacking in attention to people's livelihood.
It is understandable and justifiable for enterprises to pursue maximum profits by reducing staff and improving efficiency. However, if the government does not prioritize full employment as its primary goal of governance but instead promotes staff reductions and efficiency improvements by enterprises, forgetting its responsibility for macroeconomic regulation, it is inexplicable. From the government's perspective, the full employment rate indicator is a qualitative indicator of economic conditions.
The school enrollment rate is an economic indicator reflecting the development of education and the improvement of national quality, and it should not be simply viewed as an indicator of social and cultural development. Currently, with a surplus of various products and services, education is the only shortage. This is because we have long excluded education investment from economic investment, treating the reproduction of labor as a pure consumption process, and neglecting the expansion of labor reproduction while focusing only on the reproduction and expansion of material resources. The proportion of investment in the two factors of social production is imbalanced, resulting in slow improvements in labor quality, far lagging behind the needs of social productivity development. This is also a major reason for the increasing employment pressure in our country. We must continuously enhance our understanding of the productive significance of labor reproduction and increase investment in education. As an industry, the investment of education cannot be limited to the government. The government's responsibility is only compulsory education and basic education, while the main investors in higher education are families. If we open up the higher education market and allow social investment, this shortage in products and services will develop rapidly, with direct and indirect driving effects on the national economy that are currently immeasurable.
The urbanization rate is an economic indicator reflecting the degree to which the main contradictions in our developing country have transformed. It primarily assesses the level of national economic development. The balance of international payments is an economic indicator reflecting national economic security. The price index is an economic indicator reflecting the quality of economic development and operation. GDP growth rate is an indicator reflecting changes in the total national wealth. The last four indicators are the starting point, goals, and outcomes of national economic development, reflecting the extent, quantity, quality, and security of national economic development and operation. These indicators have always been highly valued by people, and we will not elaborate on their significance here.
I proposed eight indicators, yet none of them are the importance indicators that people pay close attention to. This is not my ignorance but intentional. Currently, our country's degree of openness is already too high, to the extent that it has affected national political and economic security. I believe that the degree of openness for a country as large as ours should not exceed 20%, but it has already exceeded 45%. This is extremely dangerous. Many decision-makers overly emphasize opening up to the outside world while neglecting opening up internally, which is highly unfavorable for stimulating domestic demand. I will not elaborate on this here, but I can discuss it in detail if the opportunity arises.
The dialectical relationship among the eight indicators is that the first four economic indicators are the cause, and the last four are the effect. The first four are the driving force and input, while the last four are the goals and output. The main focus of our economic work is the first four indicators, while the main focus is the last four indicators. Our macroeconomic regulation should adjust the first four indicators based on the conditions of the last four indicators. In reality, as long as we regulate the first four indicators properly, the last four indicators will surely meet expectations. If the first four indicators improve, GDP will undoubtedly not be low. Of course, the first four indicators should not be higher, as they are also constrained by the balance of international payments and the price index, i.e., security and quality.
(5) The financial situation is sound, and money supply is becoming increasingly relaxed. The steady upward trend in the macro economy at the beginning of the year significantly increased the growth rate of fiscal revenue while noticeably slowing down expenditure. In January and February, fiscal revenue was influenced by factors such as a surge in imports, robust car consumption, and a slowdown in the progress of export tax rebates, growing by 40.5% year-on-year, a rise of 36.1 percentage points higher than the previous year. Among them, the average growth rate of value-added tax and consumption tax collected by customs, import and export duties, and vehicle purchase tax reached nearly 70%, accounting for about one-fourth of the total increase in revenue. The reduction in tax rebates due to the slowdown in their progress accounted for about 15% of the total increase in revenue. Meanwhile, due to tight fiscal expenditure control, especially a significant decline in the growth rate of capital construction expenditures, fiscal expenditure grew by only 10.5% year-on-year, a decrease of 11.2 percentage points compared to the previous year.
At the beginning of the year, financial operations remained relatively stable, and the money supply continued to accelerate its growth, with the growth rate further improving as bank lending increased. By the end of February, the liquidity (M1/M2) stood at 36.7%, maintaining the upward trend since April 2002, with the total loan growth of all financial institutions in local and foreign currencies reaching 18.8%, the highest level since April 1997.
Regarding the money supply growth rate for 2003, although it is relatively high, we believe it is acceptable when considering factors such as the sustained downturn in the stock market, the reduced outflow of savings due to the stock market, the expectation of appreciation, increased imports and exports, and increased foreign capital inflows. The impact of foreign exchange reserves on money supply growth is significant, but the effective money supply growth rate impacting the real economy is lower than this level.
In the long term, since the reform and opening-up, China's money supply growth rate has remained at a relatively high level, even during the period of moderately tight monetary policy from 1994 to 2000. The average growth rate of broad money (M2) was 21.2%, and the average growth rate of narrow money (M1) was 17.7%. In contrast, the current money supply growth rate can be said to have just returned to a relatively normal range, and maintaining this growth trend is still necessary. Given that the current deflationary trend is primarily characterized by credit contraction, the significant increase in bank loans since 2003 should be viewed as a step in the right direction and must be firmly maintained.
In summary, based on the growth of various macroeconomic indicators at the beginning of the year, China's economic growth has shown a relatively strong trend since the implementation of the policy to expand domestic demand. The GDP growth rate in the first quarter is expected to exceed 9%, with the first half of the year likely to achieve growth above 8%, and the annual growth rate is also expected to reach 8%.
1. Consumption is emerging from the shadow and showing a strong rebound trend. Since June, the suppressed consumption demand of residents has been effectively released. Beijing, a severely affected area by the "SARS" epidemic, but according to a telephone survey of 338 samples conducted by the Beijing Economic Information Center from May 31 to June 1, the consumption market in Beijing is recovering strongly. The consumption peak expected around the "May Day" holiday in previous years is likely to be postponed. Over 85% of residents believe that the consumption of food, beverages, vegetables, fruits, daily necessities, communications, medical care, and sports and fitness has already returned to normal. Over 80% of residents believe that transportation and travel consumption has returned to normal, and nearly 50% of residents believe that dining out consumption has fully recovered. Over 95% of residents believe that all other aspects of consumption, except for tourism, will fully recover within the year.
Additionally, a survey by the China Chamber of Commerce of 100 shopping malls across the country shows that sales in the first three weeks of May improved week by week, with a clear upward trend. Under these circumstances, consumption is expected to rebound significantly in June, and a substantial rebound may occur in July.
2. The delayed impact of "SARS" on consumption growth is not significant. Unlike investment and foreign trade, the impact of "SARS" on consumption growth is primarily concentrated in the immediate reduction of consumption during the outbreak of the disease. The direct delayed impact is relatively small. Due to "SARS," residents' shopping behavior may be delayed, but the suppressed consumption desires after the epidemic will be released more strongly. Urban residents' consumption of goods with strong price rigidity, such as food and daily necessities, only changed their consumption behavior (e.g., concentrated shopping) during the peak of the epidemic, but their consumption demand did not decrease significantly. Some large consumer goods, such as home appliances, computers, and furniture, were postponed in consumption, but with the control of the epidemic, these consumptions will increase significantly. Recently, seasonal goods such as air conditioners, electric fans, and refrigerators have already become bestsellers. Additionally, "SARS" has made products with disinfection and sterilization functions very popular, and online shopping and direct selling have also been booming. We believe that the impact of "SARS" on consumption growth is only temporary, with limited delayed effects. After the recovery period, consumption demand may accelerate, forming a supplement to the temporarily reduced consumption.
3. New consumption hotspots such as housing, cars, and communications will continue to grow rapidly. In recent years, Chinese urban residents have been experiencing a new round of consumption structure upgrading, represented by housing and cars, which has played a very important role in driving consumption and economic growth. The "SARS" epidemic has not only had a significant impact on new consumption hotspots but has also stimulated the rapid growth of car and communication consumption. To combat the risk of "SARS," people have increased communication through phones and the internet, leading to a significant increase in communication consumption. Many families have advanced their plans to buy cars, with sales in Beijing in April reaching 34,000 units, a 12.1% increase compared to the same month last year. The "SARS" epidemic has also significantly changed people's housing psychology. With a large supply of affordable housing suitable for low- and middle-income families, housing consumption is expected to continue to grow steadily.