Paradoxes Go with China's Glittering Economic Growth

FOREST LEE / Peoples' Daily (China) 6jan03

Alongside China's rapid economic growth, three paradoxes have yet to be explained: the declining prices, the lower employment rate and the bearish stock market. All the three phenomena usually accompany an economic depression instead of the bubbling briskness in current China.

Alongside China's rapid economic growth, three paradoxes have yet to be explained: the declining prices, the lower employment rate and the bearish stock market.

All the three phenomena usually accompany an economic depression instead of the bubbling briskness in current China.

Continuously diving prices in general indicate an economy has slipped into a deflation, suffering from consumers' sluggish purchase sentiment.

After the widely acclaimed "soft-landing" in 1996 out of the sizzling macro-economy (the inflation rate then was as high as 27 percent) during 1993-94, the prices in China have been riding a downward trend.

For policy-makers, cries for coping with the deflationary bites are as irksome as the deflation itself over the past five years.

The increasing unemployment rate is another sphinx.

Although officials usually pin the unemployment rate at below 4.5 percent, analysts believe the figure should hit at least 7 percent, an internationally recognized alarm level. Some even project it at 15 percent or higher, pointing at the hidden unemployment in cities and the excessive labor in countryside.

As for China's stock market, theoretically a barometer of an economy's health, it is completely a puzzle seemingly contrary to whatsoever rational answers.

Recording yesterday an all-time low over the past three and half years, China's stock market appears to be running on its own, ignoring the major indicators of China's economic performance.

"All these paradoxes do not contradict with the actual economic circumstances of China, lending no doubt of China's economic growth," Qiu Xiaohua, deputy director of the National Bureau of Statistics of China was quoted as saying by the Beijing-based China Economic Times.

For the declining prices, consumers' cautious consumption does play a certain role, which, however, should not be exaggerated, Qiu said.

In addition to households' weakening buying willingness, there are some deeply seated reasons, according to the statistics official.

First, despite the 8 percent gross domestic product (GDP) growth in 2002, China actually has a potential to grow by 9 to 10 percent.

When an economy operates under its potential supply capacity, it is quite natural for it to grow with the prices going down, Qiu said.

Moreover, technological advancements, the government's determined efforts to dismantle monopoly and encourage competition, and the reduced tariffs with China's entry of the World Trade Organization all help to drive the prices down.

As for the rising unemployment rate, Qiu attributed it to the changes in China's economic growth mode and the employment structure.

Instead of simply relying on more investment of labor, land and capital, China is now trying to negotiate a higher economic output through the technological upgrade and the industrial structural adjustment.

Such a course tends to hype up an economy's productivity with the same or lower employment level, according to Qiu.

In the past, with 1 percent GDP growth, China needs one million more workers. Now, however, the same rate of GDP growth can only create 700,000 to 800,000 jobs, he said.

The on-going urbanization and the sped-up restructuring in the State-owned sectors are also altering the employment structure of China.

On the one hand, State-owned enterprises are struggling to survive through sacking excessive hands; on the other hand, farmers are rushing to cities, picking up jobs that might be done by the urban newly-unemployed if they want.

By now, the shifting population out of the countryside to cities usually stands at over 100 million, 90 percent of which have anchored their jobs there, according to Qiu.

For the inconsistency between the overall economy and the stock market, Qiu laid out a long list: regulators' weak supervision, listed companies' worse quality, the market's small size relative to China's national economy, and market participants' profiteering mentality.

But most analysts would rather believe another scenario: When the stock market was initially designed as a channel to bail out the deficit-ridden State-owned firms, and when nearly all stock-holders are well convinced that the shares in their hands can bring them not the so-called profit or dividend but a gambling chance, the stock market will surely bid farewell to the economic fundamentals and head for its own way.