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| China's flourishing steel industry has a surplus output. |
Five Hot Economic Issues - Quarters 1 & 2, 2006
1. Investment Fever Propelled by Excessive Lending
China’s fixed asset investment rocketed by 30.3 percent
in the first five months of this year, causing concern among the
country’s economists. There has been a 31.3 percent
increase in investment in local projects, and a rebound in speculation
in industries such as iron, steel and non-ferrous metals. This
particular round of investment fever in China is propelled by
the current surge in available credit from domestic lenders. Financial
industry insiders point out that banks are issuing more and more
loans in a bid to boost earnings from savings deposits. Economists,
however, warn that this is a dangerous trend.
2. Excessive Production Capacity Cause for Concern
A spokesman for the State Development and Reform Commission reports
that China’s steel production capacity reached 470
million tons at the end of 2005, with a further 150 million-ton-capacity
in the offing, yet the country’s steel consumption
in 2005 amounted to just 350 million tons. The industrial supply
and demand ratio is thus way out of kilter even when taking into
consideration future growth in demand . Other industries, including
cement, electrolytic aluminum, coking and coal, face similar concerns.
3. Foreign Trade Volume Hits US $796 billion
China’s foreign trade volume set a new record in
the first half of 2006 when it reached a total US $795.74 billion
and achieved a trade surplus of US $61.44 billion. The figure
represents a 23.4 percent increase over the same period last year.
But behind the rapid increase loom problems resulting from economic
anomalies and the export of low quality goods. For instance, China
is the world’s largest textiles exporter, but it earns
average profits of just US $0.3 per garment. Minister of Commerce
Bo Xilai recently stated that China will focus on accomplishing
three “transformations” in its foreign
trade. Bo said the country would shift its stress from the quantity
to quality of its exports, change the old practice of “going
all out to expand exports” to one that encompasses
both incentives and restrictions, and alter its policy of creating
trade surpluses through exports to one that achieves a basic trade
balance.
4. Five Million-Ton Increase in Summer Grain
China’s grain producers enjoyed a good first six
months of the year, and this summer’s harvest is expected
to exceed last year’s by some 5 million tons. Gain
producers have actually set a new record in achieving a wheat
output of 4,500kg per hectare. Statistics released by the Ministry
of Agriculture show that Chinese farmers’ household
operational incomes averaged RMB 1,238 in the first half of 2006,
an increase of 4.5 percent over the same period last year.
5. Energy Consumption Exceeds Economic Growth
Energy efficiency has become a basic policy in China, whose 2006
target is to reduce by 4 percent the amount of energy consumed
per unit of GDP generated. This target, however, is obviously
proving difficult to achieve as during the first half of 2006
energy consumption growth actually exceeded economic growth.
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| China's rapidly graying population. |
Five Traits of China’s Aging Society
1: China’s graying population is the largest in the
world, accounting for one-fifth of the world total. It is estimated
that by 2050, China’s senior citizens will exceed
400 million.
2: Increases in life expectancy brought about by improved living
conditions maintain momentum in the growth of the graying population.
3: The Chinese population got old before it got rich. Statistics
show that at the time developed countries entered an aging society,
their per capita GDP ranged between US $5,000 and 10,000, while
that of China was less than US $1,000.
4: The number of “empty nest” seniors
has increased rapidly. The situation where a couple takes care
of four seniors (parents of the wife and husband) and a child
is also becoming commonplace.
5: Caring for the elderly in rural areas is becoming increasingly
difficult as more and more able-bodied villagers leave to find
work in cities.
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| Jinjiang in Fujian is now garment capital of the world. |
Jinjiang is Jacket Capital of the World
After conducting a year-long survey, TNS, the world’s
largest customized market research consultancy, concludes that
Jinjiang in Fujian Province is the jacket capital of the world,
in terms of production scale and economic strength. It found that
some 12 percent of the world’s, and 41 percent of
China’s, men’s jackets are made in Jinjiang.
The survey covered five garment production bases in China and
10 cities around the world, including New York, Florence, Seoul,
and Mumbai. In 2005 Jinjiang sold 152 million jackets, or 12.11
percent of the world’s total.
Tarim Oilfields Open to Foreign Companies
China will open nine petroleum prospecting venture zones of
a total area of 110,000 sq km in the Tarim Basin to foreign oil
companies. The move marks a new round of Sino-foreign cooperation
in the oil industry. The Tarim oilfield is the largest Sino-foreign
oil cooperation project to emerge in the past 12 years. It is
one of China's three largest basins, with oil and gas deposits
exceeding 10 billion tons and an annual output in excess of 10
million tons. Current development, however, remains at an early
stage. There is approximately one oil well every 1,000 square
kilometers in the Tarim Basin.
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| An improved investment environment has attracted many foreign enterprises to China. |
Fine Tuning of Foreign Trade Policy
China is to alter its longstanding foreign trade and investment
policy of stimulating the domestic economy through exports. Fu
Ziying, an official with the Ministry of Commerce, says the change
amounts to a “fine tuning” that will
prevent any "retrogression” that would inhibit
the initiative to utilize foreign investment and develop foreign
trade. For instance, the tax refund policy will be suspended for
exporters that pollute the environment and consume high levels
of energy and raw materials, and more agricultural subsidies will
be introduced to help farmers boost their income. To improve the
technological content and added value of exports, the Ministry
of Commerce has decided to set up a foreign trade development
fund to support innovation and R&D in enterprises.
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