Chinese Economy Reaches Crossroads

By Jin Jing On December 12, 2011 @ 4:02 pm In Business & Economy,Special Section | No Comments

A woman walks with flowers past a RMB (renminbi) poster. (Laurent Fievet/AFP/Getty Images)

A woman walks with flowers past a RMB (renminbi) poster. (Laurent Fievet/AFP/Getty Images)

China’s 2011 tone-setting meeting, which precedes the Central Economic Work Conference, is not yet scheduled. That’s unprecedented and seen as a sign that Chinese leaders are uncertain what action to take to stir the economy out of its highly unstable place.

Each year before the Central Economic Work Conference is held, the Communist Party’s Central Politburo meets to discuss the economic direction for the upcoming year. Insiders call it the tone-setting meeting. The meeting has always taken place in November or in the first few days of December.

Lately China’s economy has been showing signs of a slowdown. Analysts say the economy has reached a crossroads. Choosing between continued growth or curbing inflation has become a tough choice for top party leaders. This is the reason for the delay of the tone-setting meeting, they say.

Stagflation

Caoan Jushi, a prominent political and economics commentator, told The Epoch Times that the main reason for the delay of the tone-setting meeting is the complex global economic situation. Even though the meeting is delayed, the regime will not be able to come up with a definitive solution, because the economy in mainland China has already entered stagflation.

“Any sort of stimulation would not help,” Caoan said. “If China Central Bank starts to print money, prices will go up even more. If they do not print money, the economy will collapse. This is the dilemma.”

Vice Premier Wang Qishan, who is in charge of finance and commerce, said during a Dec. 3–4 visit in Shenyang, Liaoning Province, that the import and export business must adhere to the steady growth plan of the 12th five-year plan.

While meeting with U.S. Commerce Secretary Bryson, Wang spoke about an economic plan aimed at expanding seven industries in the next five years and stimulating the Chinese economy.

The total investment would amount to 4.8 trillion yuan ($754 billion), Wang said. Some of the industries included in this plan are new energy, biotechnology, and automobile technology. Wang also said that export remains the guarantee of survival for Chinese enterprises in various locations.

Caoan said the Chinese regime still regards economic growth as an important factor in maintaining social stability. Without economic growth, there will be widespread unemployment. The problem is that 70 percent of China’s gross domestic product growth comes from exports, but with the economic slowdown in Europe and America, for China to maintain its exports is not the best approach to maintaining overall growth. Additionally, because of the high inflation, the regime cannot stimulate domestic consumption either.

Inflation

Columnist and real estate expert, Chen Zhencheng told The Epoch Times, that Europe’s economic woes have greatly affected China’s manufacturing and exporting of low-end products. Therefore, the regime will be making adjustments in its economic structure.

Chen said that even though the Statistics Bureau stated that the consumer price index (CPI) for October had dropped to 5.5 percent, the general public did not notice any price lowering. The CPI is calculated using products that have very little price fluctuation and not much to do with everyday expenditures. In particular, real estate is not included in the calculation. Chen said he estimates that the real CPI value has gone up by 25 percent.

Chen said it was wrong for the regime to blame the closing of small and medium enterprises on tightening currency policy. On the contrary, the business closures were caused by the regime’s overly relaxed currency policy, which triggered inflation and rising labor prices. Eventually, these businesses encountered great difficulties with sales and had to close down.

Inflation not only influences the everyday life of the general public, but is also a crucial factor in the survival and competitiveness of enterprises, Chen said. Therefore, in Chen’s view, the negative effect of China’s inflation far outweighs any positive effect of stimulating economic growth. The regime should focus its future policy on inflation control, Chen said.

“The general public’s mentality is that the higher the inflation, the less they spend, and the more they save. I think it is the rising prices that have decreased consumers’ buying power. Only through lowering inflation will prices drop and consumers start spending again,” Chen said.

In the meantime, it is uncertain how much a relaxed currency policy will stimulate the economy. There is not much room to keep pumping more money into the market, especially in the real estate market, which has reached a saturation point. Even if prices drop by 50 percent, the majority of Chinese people still cannot afford it.

Read the original Chinese article.

ChinaReports@epochtimes.com


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