It remains 8%. On March 5, Premier of the State Council Wen Jiabao delivered a government work report at the fifth meeting of the Tenth National People's Congress, continuing for the third year to set an 8% growth target for the Chinese economy.
In 2006, China's actual GDP growth was 10.7%, far exceeding 8%, marking the fastest growth rate of the Chinese economy in over a decade. In fact, this was also the fourth consecutive year that China had achieved double-digit economic growth: in 2003, China's economy grew by 10%, in 2004 it grew by 10.1%, and in 2005 it grew by 10.2%.
China's remarkable economic performance has sparked two distinctly different reactions internationally. Optimists believe that if the Chinese economy can maintain its growth momentum in 2007, then in terms of absolute value, it could surpass Germany as early as 2008 to become the world's third-largest economy. If this growth momentum can be sustained for seven years, there is hope to surpass Japan and become the world's second-largest economy.
Pessimists, on the other hand, believe that the current growth momentum of the Chinese economy is "irresistible" but also "unsustainable": does the Chinese government have the ability to continue managing and maintaining such high-speed economic growth? Some even believe that the specter of a bubble economy has already begun to loom over China.
Within China itself, there are differing assessments of the future growth potential of the Chinese economy. Should the macro-control measures that China has been intensifying since 2004 be "moderated"? Is there a possibility that the Chinese economy could reach a "turning point" in 2007? Should China seek new growth models and new sources of growth?
Growth Strategy for Sock Factories
In 2006, China's economic growth still maintained a high dependence on the "export" engine — last year's trade surplus increase reached a record-breaking 76%, but at the same time some risks were accumulating.
Chinese labor-intensive industries' exporters felt unprecedented pressure. Liu Xunlin is the general manager of Zhejiang Taizhong Knitting Company. Taizhong Knitting is located in Zhuji, Zhejiang, where Datan Town and Caota Town are famous for exporting socks. But this spring, business owners were all worried, and Liu Xunlin was one of them.
One difficulty is that labor costs are rising sharply. Workers' base salaries have increased from 800 yuan per month last year to 1,000 yuan, but they still cannot hire enough workers. Many factories in the area have not been able to resume operations after the New Year. The second difficulty is the pressure of RMB appreciation. Last year, the topic most discussed by Liu Xunlin and local entrepreneurs while drinking tea was RMB appreciation. Appreciation made these entrepreneurs reluctant to accept orders, fearing that they would lose money on every order.
As a response strategy, Liu Xunlin has expanded production capacity at his sock factory in Cambodia by 20%, and he plans to move more orders to Cambodia for production. Liu found that the overall cost of producing socks in China has now surpassed that of Indonesia, Vietnam, and Cambodia in Southeast Asia. However, some people believe that these difficulties will further force sock companies to shift toward higher-value-added segments, promoting upgrades in enterprises and products. This is also an "opportunity."
Liu Xunlin and his sock factory are just a small reflection of the export industries facing growth challenges in China. Wang Jian, Deputy Secretary-General of the Macroeconomic Research Institute of the National Development and Reform Commission (NDRC), feels uneasy about China's heavy reliance on exports. He is one of the few Chinese economists who have significantly lowered their predictions for China's economic growth in 2007. He predicts that China's economic growth in 2007 will only be between 6% and 8%.
"If we encounter simultaneous internal and external pressures, with the U.S. economy in recession and a war launched against Iran, China's economic growth rate this year might only be 6%," said Wang Jian.
However, most economists are not pessimistic about the external environment for China's economic growth. They believe that although a decline in the U.S. economy seems inevitable, whether it will develop into a recession and how quickly it will do so are still uncertain. Additionally, the current economic growth in the EU and Japan remains relatively strong, which are favorable factors for China.
International financial institutions such as Goldman Sachs, Lehman Brothers, and HSBC generally predict that China's economic growth rate in 2007 will be above 9%, and the World Bank is even more optimistic, predicting that China's economic growth rate in 2007 could reach 10.7%.
Investment is expected to continue increasing
Investment remained the largest driving force behind economic growth in 2006, with an average monthly investment growth rate of 24% throughout the year, only declining to 13.8% in December.
Wang Jian stated that the reason he significantly reduced his prediction for China's economic growth this year is because the two major forces driving China's economic growth in 2006 — investment and exports — both carry the risk of slowing down.
"Last year, new investments in the steel industry even showed negative growth for the entire year, indicating that the entire investment growth cycle from final consumer demand to basic industries and infrastructure fields that began in 2002 has gradually come to an end," Wang Jian said. His judgment is based on the fact that China's coal, steel, and electricity...
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