Learn Chinese - Macro controls must be wielded selectively

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Opinion / Commentary

Macro controls must be wielded selectively

By Qi Jingmei (China Daily)
Updated: 2007-09-24 07:02

As the national economy continued its brisk momentum through the early
part of the year, members of the public, administrative circles and
academia began to wonder whether the growth could be sustained.

A detailed analysis of the economic situation suggests the sustainability
of the growth depends heavily on how the authorities address several key
problems with their macro control policies.

The current fundamentals are strong enough to back further growth, but
the country also faces potential limits from resource and environmental
pressure.

In 2006, the major economic indicators met expectations and even went
beyond the predicted growth rate. But the country missed its target of
reducing energy consumption for every unit of gross domestic product
(GDP) by 4 percent.

In the first six months of this year, the six most energy-intensive
industries - crude oil refining, nonferrous metal smelting, chemical
engineering, electricity generation, coke production and nonmetal ore
refining - saw their total industrial value added increase by 20.1
percent, which was 3.6 percentage points more than during the same time
last year. The rate of energy consumption also grew quickly. The amount
of electricity used by heavy industry jumped by 18.8 percent in the first
half, 4.6 percentage points more than during the same period in 2006.

If this momentum is not checked in time, it will be more difficult to
reduce energy consumption this year. It might also complicate efforts to
cut energy consumption per unit of GDP by 20 percent and reduce pollutant
discharges by 10 percent during the period of 2006 to 2010, which are
goals outlined in the 11th Five-Year Plan.

So instead of being overwhelmed by the amazing economic growth, the
authorities should pay more attention to reducing energy consumption and
cutting pollutants.

On the one hand, the authorities should upgrade the industrial structure
by promoting new technology and new materials and importing low
energy-consuming technologies and equipment. Industry should consider
reducing pollution its first priority.

On the other hand, the growth of manufacturing sectors that could be
considered energy guzzlers should be slowed, while the tertiary sector
should be boosted.

Compared with agriculture and industry, the tertiary sector consumes
fewer resources and emits less pollution. Tertiary businesses put less of
a burden on the environment, so expanding the sector will make our
economic growth more sustainable.

In 2006, Beijing cut its energy consumption for per unit of GDP by 5.25
percent, the only provincial body to hit the 4 percent target. This
success should be attributed to the relatively small proportion of the
local economy occupied by heavy industry - the tertiary sector
contributes more than 70 percent to Beijing's economic output.

The economies of the most energy-hungry provinces - Qinghai Province and
the Ningxia Hui Autonomous Region, for example - are dominated by heavy
industry.

Another important goal of the country's macro control efforts is to rein
in real estate investment to maintain prices at a reasonable level. But
this target is far from being achieved.

In the first six months of this year, investors poured 988.7 billion yuan
($130.1 billion) into real estate development, representing 28.5 percent
year-on-year growth. The average price of property in 70 cities across
the country climbed by 7.1 percent in June alone, 0.7 percentage points
more than the preceding month and a record rise for the past 23 months.

Policies aimed at checking the frenzy in the real estate market are
mostly focused on containing demand. Developers face stricter regulations
when borrowing, down-payments for houses bought with mortgages have been
increased and regulations on the purchase of multiple apartments have
been put in place. However, instead of curbing prices, these policies
only sped up the growth.

So policymakers should try to tackle the problem from another front:
offer more supply to the real estate market.

Real estate prices in Qinhuangdao, a medium-sized coastal city in North
China's Hebei Province, soared last year. The average price leapt by 11.8
percent in December 2006, making headlines across the country. But this
momentum quickly ceased after the local government approved 15 estate
projects within a short time. Prices soon resumed a more normal growth
rate.

Another factor pushing up real estate prices is that many developers
hoard land or houses in the hopes of selling them in the future at higher
prices. Hoarding exacerbates the shortage of supply and supports price
rises.

When the real estate market has abundant supply, prices rise more slowly.
An increased supply should include multiple types of residence: market
rate homes, government-subsided low-priced homes and low-rent homes.
Thus, the demands of different social groups will be satisfied in
different ways, and the real estate market will see a balance between
demand and supply.

Since the start of the new year, the central government has launched
several measures to help the economy develop more smoothly, but few of
them delivered as much as expected.

A key reason is that the market is playing a more important role in the
economy. The market has its own rules to balance demand and supply, to
guide the flow of resources and to ensure competition among players.

The development of the past few decades has left China's market
relatively mature, and its performance in the areas mentioned above is
much stronger than in the past.

Macro control policies should only be aimed at settling issues that the
market cannot settle, or at maintaining the market order.

Policymakers should try to improve the economy's structure with monetary
and fiscal policy, rather than paying overt attention to the details of
the market.

The author is an economist with the State Information Center

(China Daily 09/24/2007 page4)

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