Despite the many critical factors that took place in 2003, China's economy emerged in a more than favorable light, causing naysayers to run for cover.
China's GDP reached 11.67 trillion yuan (over $1.4 trillion) in 2003, while the per-capita GDP averaged $1,090. This resulted in a year-on-year 9.1 percent increase in comparable prices, which represented the highest annual growth rate since 1997.
Before the statistics came out, many knowledgeable economists, however, were only "cautiously optimistic" toward the Chinese economy's performance in the eventful year. Their arguments sounded reasonable against various unfavorable elements-the severest outbreak of the SARS (severe acute respiratory syndrome) epidemic worldwide, frequent natural disasters nationwide, including the disastrous flooding in summer, and increasingly apparent "overheating" in sectors such as electrolytic aluminum and steel.
Massive Imports and Exports
Customs statistics show that China's total import/export volume reached $851.21 billion in 2003, up $230.4 billion or 37.1 percent over the previous year. It represented the fastest growth since 1980. Of this, exports were valued at $438.37 billion, up 34.6 percent, and imports came to $412.84 billion, up 39.9. The annual trade surplus was $25.53 billion.
It is noteworthy that China sent a few purchasing missions to some developed countries in 2003, resulting in contracts worth billions of dollars. This action, in efforts to honor its WTO membership commitments and to ease trade imbalance with these countries, had led to a 16.1 percent decrease in China's trade surplus from $30.36 billion in the year before.
Alongside the accelerated urbanization process in China, regional economic integration in the country is gaining speed, which has greatly promoted urban construction and relevant investment. In 2003, China completed construction of 4,600 km of highways, increasing its total highway mileage to 30,000 km, a figure second only to the United States. The addition of telephone subscribers totaled 112 million, raising the national total number of users to 532 million by the end of 2003 and the telephone penetration rate to 33 percent across the country on average. The newly added installed power generating capacity was 30 million kw.
Fixed assets investment hit 550 billion yuan ($66.43 billion) throughout China in 2003, an increase of 9.8 percent year on year. Of the total, investment in capital construction grew by 28.7 percent, that in equipment upgrading and technical renovation by 25.1 percent and that in property projects by 29.7 percent. Industrial investment, which was 39 percent higher than the year before, was the leading force to drive up spending in fixed assets.
The industrial sector contributed to 5.7 percentage points in the GDP growth in 2003. Heavy industry's contribution was 4 percentage points higher than that of light industry. Electronic equipment manufacturing, transportation equipment manufacturing, electrical machinery and equipment manufacturing, metallurgy and chemical industry were five major sources of the year's rising industrial yields.
Besides market stimulus, policy adjustments in three fields had added to the effect of investment to accelerate economic growth.
First, the interest rate cut indirectly capitalized enterprises. Since 1998, China had lowered deposit and lending rates, which pressed down the lending rate by 5 percentage points in 2003 compared with 1998. Owing to this drop, Chinese enterprises' interest payment for their 10-trillion-yuan bank loans was slashed by 500 billion yuan. The improved financial conditions of enterprises encourage banks to increase credit and, in turn, boost investment demand.
Second, the more proactive monetary policy enhances enterprises' enthusiasm in investment. By the end of September, 2003,the growth rates of M1 and M2 money supply in China reached 18.5 percent and 20.7 percent respectively, both outstripping the previous red line of 15 percent.
The relaxed monetary policy immediately brought a credit boom. Aggregate lending of Chinese commercial banks had led the entire world to increase at a rate between 18-20 percent for two successive years by the end of 2003. The investment-driven growth by no means became strong.
Third, non-public sector demonstrates growing investment intention amid the change of investment sources. China had adopted a proactive fiscal policy to stimulate economic growth since 1998. But the practice had been giving way to a new one based on bolder monetary policy since early 2003, which focuses on achieving economic growth through maintaining a high-speed growth of money supply. A consequent change was the state treasury being replaced by market and enterprises to serve as major investment undertakers.
Non-public sector accounted for about 40 percent of nationwide fixed assets investment in 2003, while the ratio of government spending for this purpose dropped from 14 percent in 1998 to 5 percent in the first half of 2003. The change indicated a bigger contribution of non-public investment to the country's GDP hike.
Sluggish domestic demand had been a peril to China's economic growth for years. In 2003, the country's total consumer retail sales rocketed to 4.58 trillion yuan ($553.65 billion), up 9.1 percent year on year to keep pace with GDP's growth. Though domestic demand is not yet a key engine and its effect is more indirect, a changing consumption pattern with housing and auto spending as the mainstay is still significant to economic growth.
The flourishing real estate and auto industries have become two major driving forces of the national economy. The trend is increasingly remarkable since the country launched the urban housing system reform in 1998 and it relaxed restrictions on the auto industry after the WTO accession in late 2001.
Globally, when a country's per-capita GDP reaches between $1,000 and $3,000, consumption credit will boom. China entered this era in 2003.
Statistics released by the Agricultural Bank of China, the front-runner in consumption credit business among the country's four major commercial banks, show its auto loans amounted to 48.1 billion yuan ($5.8 billion) in January-November 2003, a year-on-year increase of 54.6 percent or 17.4 billion yuan ($2.1 billion).
In terms of the Industrial and Commercial Bank of China, another big commercial bank, its individual housing loans had amounted to 332.84 billion yuan ($40.2 billion) at the end of 2003, making up 68 percent of the bank's total housing loans of 490.49 billion yuan ($59.23 billion) and seeing its ratio to the bank's total lending rising from 0.2 percent at the end of 1997 to 10.2 percent.