Expert: Don´t say rashly that China´s economy is overheated

cctv.com 03-07-2004 11:03

As Chinese economists are locked in heated debate about whether or not China's economy is overheated, Lu Baifu, former deputy director of the State Council Development Research Center, came out with the caution: do not say rashly that the national economy is overheated.

The Chinese economy is too complicated to be described by such ready-made terms as "hot" or "cold", Lu said during an interview with Xinhua.

Lu, a deputy to the National People's Congress (NPC), noted that those who deem China's economy overheated in that they use the contrasting co-efficient prevailing at the end of the 1980s and in the beginning of the 1990s, when the roles of the market was not brought into full play.

But no sooner had China's economy came out free from a five-year-long threat by deflation in 2003 than overgrowth of bank loans and blistering investment growth began to jitter the economic circles, so much so that even some noted economists came out with a warning against overheating and a call for a "soft landing".

Lu described the current high level operation of the economy, including the demand for investment, import and export and consumption, as "normal", adding that it reflects the outburst of the intrinsic vitality injected by restructuring, institutional innovation and active macroeconomic policy over the past few years.

The non-governmental investment, which had long been in the doldrums, became energetic all of a sudden in 2003. "That is a good thing," Lu said.

"It is something that had long been dreamed of but there was no way to activate. If we get panic at the sight of the unexpected activity of non-governmental investment, isn't it a case of Ye Gong loving the dragon?"

An ancient story tells that Ye Gong, who professed to love dragon very much, got very much stricken when a real dragon appeared in his palace.

Lu holds that demand for investment, import and export and consumption is on the whole moving along the right direction. Keeping in pace with it are structure optimization, technical contents, the overall national strength and competitiveness.

Lu attributed the blistering growth of investment in the iron and steel, textiles, cement, electrolytic aluminum and high grade property industries to the result of inaccurate anticipation of the investment market.

This needs a correct guide, Lu stressed. Investment in iron and steel should be channeled into varieties that are rare and in shortage; investment in real estate should be lured into lost-cost housing for common people instead of into villas, office towers and other high grade structures by providing more preferential policies, such as cheaper land use. The same is true with investment in cement and electrolytic aluminum industries.

Optimization of investment structure and control of the total amount of investment are something that supplement and reinforce each other, Lu said. Now that the transition from the planned economy to a market economy has been completed and the country is in for a period of consolidation, market roles should be made stand out more glaringly.

The old method of "universal application without discrimination " as prevalent in the planned economy would bring about an adverse impact on the operation of the whole economy. As the economic aggregate has grown, it is inadvisable to use the old contrasting co-efficient, just liking making a cake: if the cake has become larger, a bigger packing box is needed.

"Now I have not seen any serious imbalance between total demand and total supply and in the major proportionate relationship in the national economy as characteristic of overheating seen during the period of the planned economy and in the middle period of reform," said the economist.

As the think-tank is still debating on the issue, the central authorities have opted for a middle-of-the-road approach: apply neither the acceleration pedal nor the braking pedal.

"If we stop the proactive fiscal policy and tighten money supply, the economy is likely to be clogged, resulting in temporary default and mislocation and that is very dangerous in the economic operation," Lu said. It would revive deflation that has cost the country several years of strenuous efforts to control and what has been done previously would all go to the winds.

"We should view the current economic situation in a cool-minded and a matter-of-fact manner," Lu advised. "Do not say rashly that the economy is overheated."

Editor:Xiao  Source:Xinhua News Agency