China s resilient economy

China's resilient economy

The sustained growth of China's economy continues to impress commentators and critics alike. GDP growth for the full year 2002 is set to reach 8 per cent at the time of writing, while industrial production in the 12 months ending October 2002 increased by 14.2 per cent, ahead of all other developing countries and in marked contrast to the lacklustre economies of the EU and the United States. The first fruits of WTO entry have been the doubling of China's monthly trade surplus to US$4.75 billion in October 2002, raising the 12 month trade surplus to US$30.0 billion, and the resurgent foreign direct investment (FDI) which is likely to exceed US$50 billion for 2002, a record new annual inflow.

However, critics of China's macro-economic management continue to focus on the unresolved weaknesses of the state-owned banking sector and the non- performing debts of state-owned enterprises (SOEs), which equate to a significant proportion of GDP. After this year's experience of major corporate collapses in western financial markets, finger-pointing at irregularities in China carries less conviction and the tough strategy which China has promulgated for the restructure of SOEs (see Chapter 1.8), if carried through, will address public sector indebtedness over time.

Perhaps because they are now too accustomed to economic life in low-growth economies, western observers tend to overlook the momentum and accelerator effects of China's high growth and high FDI business environment on the creation of national wealth. Visitors to any of China's buoyant cities are struck by the pervasive growth-orientated outlook which differentiates business development in China from business back home.

In his valedictory address to congress of 9 November, Mr Jiang Zemin laid emphasis on continuing economic stability and growth, setting the target of a four-fold increase in GDP by 2020. Continued annual growth of at least 7 per cent is probably necessary to offset the problems already mentioned, as well as the threat of rising unemployment as inefficient and uneconomic SOEs are culled. In this context, the positive stimulus to the economy provided by WTO entry is of paramount importance.