On December 7, 2011, Chinese Academy of Social Sciences(CASS) released the Economic Blue Book for 2012 in which it forecast China’s economic growth rate for 2012 will slow to 8.9 percent, lower than 9.2% for 2011 and also below previous forecast of 9.2% made in October, 2011.
Li Yang, vice head of the academy, stressed at the press conference that the decline in economic growth next year would be a sure thing. China may have to face a long-term prospect featuring economic growth of less than 9%.
With the “three driving force” behind economic growth losing steam, an imminent downturn looks inevitable. For instance, export’s contribution to overall economy has fallen into negative territory.
"Next year, export’s contribution to economic growth will be zero or even negative. Consumption will be relatively stable, but investment will certainly drop, hence, a growth forecast of 8.9% for 2012 is quite sensible." Li Yang said in the conference.
It is reported that the Politburo will convene a meeting in the near future to set the tone for next year’s macro policies. Central Economic Work Conference will also be held next week. Taking into account the lack of favorable elements to support China’s economic growth, some scholars suggest that the central government cut target for next year’s economic growth.
CASS mentioned in the Blue Book that there would be a slowdown in investment, net export and consumption growth. To be more specific, Investment in 2012 will see a growth of around 22%, lower than 24% for 2011. Trade surplus is estimated at $ 135 billion, less than this year’s $ 161 billion. Total retail sales are expected to reach 21 trillion, at a growth rate of 15.7%, also below the 16.7% growth rate for 2011.
It has been moderate to put China’s economic growth for next year at 8.9%, which should be regarded as an optimistic rate given the economic malaise at home and abroad. On December 6, Asia Development Bank (ADB) released a report which forecast China’s economic growth in 2012 will be 8.8%, but if euro zone and the United States were to suffer a severe recession, China’s economic growth will further drop to 6.8%.
Li Yang believes it’s only natural for China’s economy to slow down as a result of a slump in external demand, and in the long run, it will be a good thing for China to end its over-reliance on fixed asset investment and exports, a downturn in the process should be taken as a benign correction. "In terms of economic growth pattern, we have upgraded to a new level, a healthy path characterized with a structure of more coordination, more sustainability." He said.
According to Li, China’s trade surplus may be maintained around $ 150 billion in the next few years. In accordance, the trade surplus as a percentage of GDP will stay below 3%.
Europe’s sovereign debt crisis has yet to conclude. Italian debt will be due in the March of 2012, whether the country will suffer the fate of Greece will become an issue of concern. Considering the European Union and the United States are both China’s largest export destinations, economic slump in those two markets will definitely drag on the Chinese export.
Economic slowdown prompts acceleration in structural adjustment
Given current slump in developed countries, Department of Commerce has been conservative in forecasting export growth for next year, putting it at 10%. This is much lower than the growth rate of 22% for the first 11 months of 2011.
To counter the economic downturn, The Blue Book suggests, China should maintain a stable macro-policy in 2012, continue to implement the proactive fiscal policy and prudent monetary policy. In order to maintain steady economic growth, appropriate and timely fine-tuning of monetary policy should be adopted. Meanwhile, structural adjustment and transformation of growth pattern should also be expedited.
This involves raising structural tax cut, waiving repetitive sales tax levied to service industry, preferential income tax policies for small enterprises, as well as related measures.
As a member of the Standing Committee of the National People’s Congress (NPC), Chen Jiagui noted that "prudent monetary policy" sounded more neutral, but in practice, if the price rise falls within a reasonable level, the monetary policy could be further relaxed accordingly.
On December 5, 2011, the central bank decided to cut the reserve requirement ratio for commercial banks. Considering the relaxation of credit has already started in November, some experts believe that credit growth will maintain a moderate pace in 2012.
CASS deputy head Li Xuesong holds the view that in speeding up economic restructuring and transformation of growth pattern, the next step should be investing more government resources in employment, social security, education, health among other public services. Focusing on consolidating the foundation of agricultural industry. Increasing farmers’ incomes through every possible means to further narrow the income gap between urban and rural residents.
Zhang Yansheng, director of Foreign Economic Research under National Development and Reform Commission, believes that it should also be indispensable to promote the steady growth of exports while those involved enterprises must accelerate industrial upgrading. In the meantime, it’s necessary to research how to raise the voice of developing countries in global affairs.
Although the overall market mood has been gloomy about the growth prospect, Lu Xiaoming, Chief economic analyst of Xinhua News Agency, said "China’s economic growth for next year actually is not that disappointing."
Lu said Europe’s economy may fall back into recession next year, even with developed countries only scoring 1.5% growth rate, China’s export growth is still expected to maintain a double-digit growth.
Lu pointed out that inflation kept hitting new high in 2011, defying strict austerity policy, investment and imports also maintained a strong momentum, all these highlighted robust growth potential for China’s economy. From a medium and long-term perspective, the internal driving force for China’s economy will not disappear, such as the demographic dividend from its tremendous young labor force, which will continue to underwrite a high growth rate for next year.