Expert： China’s economic growth will not drop sharply this year and next as it did in 1998.

　　Since the beginning of this year, China’s economic development is at a new juncture. In the face of the complicated situation of increasing uncertainties in the international economic environment and the rapid rise of domestic prices, the main orientation of macro-control should be to prevent economic growth from becoming overheated and prices from rising too fast, and at the same time, to avoid a "hard landing" and prevent the economic growth rate from falling too fast. In this context, it is of great significance to correctly judge the rising prices and macroeconomic trends for maintaining stable and rapid economic development.

　　Causes and characteristics of the new round of price increase

　　Since the reform and opening up, China has experienced two serious inflation: the first time was from 1988 to 1989, and the consumer price index (CPI) reached 18.8% and 18% respectively; The second time was from 1993 to 1995, and the CPI reached 14.7%, 24.1% and 17.1% respectively. Compared with the previous two rounds, the new round of price increase since 2007 is very different in terms of institutional environment, economic openness and total supply and demand pattern. This round of price increase is more complicated, which is driven by both demand and cost, both domestic and imported inflation, and is caused by the superposition of many factors. Its main characteristics and causes are:

　　The structural price increase mainly driven by the price increase of agricultural products. The rise of CPI in 2007 began with the increase of grain and edible vegetable oil prices at the beginning of the year, and accelerated to the sudden increase of pork prices in May, with an annual increase of 4.8%. Among them, the price of food rose by 12.3%, which affected the CPI by 4.1 percentage points. In the first quarter of 2008, CPI rose by 8% year-on-year, with an increase rate of 5.3 percentage points higher than that of the same period of last year, among which the price of food rose by 21.4%. In April and May, CPI rose by 8.5% and 7.7% respectively, among which food prices rose by 22.1% and 19.9% respectively, which was still the main factor. Apart from some short-term factors (such as the pig epidemic last year, the severe low-temperature freezing rain and snow disaster and the Wenchuan earthquake at the beginning of this year, etc.), this round of agricultural product price increase is mainly affected by medium and long-term factors. First, from 1997 to 2006, CPI increased by 9.5%, with an average annual increase of less than 1%, especially the prices of agricultural products were at a low level for many years, while the prices of agricultural means of production continued to rise, and the substantial increase in the production costs of agricultural products would inevitably push up the prices of agricultural products. Second, the process of industrialization and urbanization in China has been accelerated. As a result, on the one hand, the cultivated land has been decreasing year by year, with a net decrease of 88.2 million mu since 2002; On the other hand, the urban population is increasing, with an annual increase of nearly 20 million people since 2002. In addition, with the continuous growth of people’s income, the demand for agricultural products (especially livestock and poultry products) is increasing. Therefore,No matter from the formation mechanism of agricultural product prices (limited arable land, great restriction of agriculture by natural conditions, certain rigidity of agricultural product demand, etc.), or from the law of agricultural product supply and demand, this round of agricultural product price increase is inevitable. The history of industrialized countries shows that the price of agricultural products is gradually rising, thus gradually narrowing the price scissors difference between industrial and agricultural products, which is an inevitable long-term trend with the process of industrialization and urbanization. This process is also inevitable for our country. The problem is that because the prices of agricultural products have been stable at a low level in previous years, contradictions have gradually accumulated and concentrated, so that food prices have risen too fast since last year, which has a great impact on the basic life of low-income groups. Therefore, effective measures must be taken to curb the excessive rise of the overall price level.

　　The transmission and influence of imported inflation on domestic prices. In recent years, the prices of crude oil, grain, iron ore and other primary products have risen sharply in the international market, while China’s demand for primary products such as oil and iron ore has increased sharply, which is highly dependent on foreign countries. Therefore, the price increase of domestic refined oil, edible vegetable oil, chemical fertilizer and steel is mainly affected by the price increase in the international market, and the characteristics of imported inflation are obvious.

　　Driven by strong investment demand. Since 2003, China’s economy has maintained a high-speed growth of more than 10%, and the strong investment demand has pushed up the prices of domestic investment products and factors such as land and labor, and gradually transmitted them to CPI. Since March this year, the ex-factory prices of industrial products have all increased by more than 8%.

　　These factors determine that China’s CPI will remain at a high level in the near future. Because last year’s CPI was low in the first half of the year and high in the second half, it is expected that this year’s CPI trend will be higher in the first half of the year and lower in the second half.

　　The relationship between rising prices and structural contradictions in China’s economy

　　The deep-seated reason for this round of price increase is that China’s economy has accumulated some structural contradictions in the rapid growth of more than 10% for five years, which are highlighted by two imbalances, namely, the imbalance between domestic savings, investment and consumption, and the imbalance between domestic demand and external demand. Economic growth relies too much on investment and exports in demand and too much on industry, especially heavy chemical industry. From 2003 to 2007, the investment in fixed assets of the whole society has maintained a high growth rate, with a cumulative increase of 2.12 times in five years. In 2007, the investment rate rose to 42.1%, while the consumption rate dropped to 49%, the lowest since 1978. Overexpansion of investment has caused overcapacity in some industries, which must be digested by export expansion, thus increasing the proportion of foreign trade surplus in GDP from 1.5% in 2003 to 8% in 2007. From the perspective of three industrial structures, the proportion of the secondary industry increased from 46% to 49.2% from 2003 to 2007, while the proportion of the tertiary industry decreased from 40.4% to 39.1%. In the light and heavy industrial structure, the proportion of heavy industry continued to rise, reaching 69.9% in 2007, while the proportion of light industry decreased to 30.1%. The unbalanced development of three industries and light and heavy industries is closely related to the imbalance between investment and consumption, and the two are mutually causal.

　　With the rapid growth of investment and the continuous increase of investment rate, savings are still greater than investment, which is manifested in net exports and net capital outflows. This shows that the excessive investment growth, excessive money and credit supply and excessive foreign trade surplus are rooted in the high savings rate, which is closely related to the unreasonable changes in the national income distribution pattern. From 2003 to 2007, fiscal revenue and corporate profits grew at an average annual rate of over 22% and 35% respectively, while the per capita disposable income of urban residents and the per capita net income of farmers grew at an average annual rate of 9.8% and 6.8% respectively. According to estimates, China’s total savings rate averaged 39.8% in the 1990s, and rose to 49% in 2006, mainly due to the substantial growth of corporate savings and government savings. In 2006, residents’ savings, enterprises’ savings and government’s savings accounted for 38.5%, 42.2% and 19.3% of the total national savings respectively, in which the proportion of residents’ savings decreased by 11.9 percentage points compared with the average level in the 1990s, while the proportion of enterprises’ savings and government’s savings increased by 6 percentage points and 5.9 percentage points respectively. This change in the pattern of national income distribution is an important reason for the imbalance between investment and consumption.

　　This kind of internal imbalance and internal and external imbalance is manifested as liquidity in the banking system surplus in money. Generally speaking, the growth rate of money supply is equal to GDP growth rate plus price increase rate (expressed by CPI). From 2003 to 2007, the cumulative growth rate of broad money M2 was 117.6%, exceeding the sum of GDP growth rate and CPI growth rate by 80.0% to 37.6 percentage points. Theoretically speaking, the money supply that exceeds the normal needs of economic growth will be manifested as rising prices. It is only because of the widening deposit gap of financial institutions that these excess money supplies have not completely translated into price increases. In recent years, the rise in consumer prices and asset prices is rooted in excess liquidity.

　　Why is there excess liquidity? The problem goes back to the two imbalances mentioned earlier. The imbalance between domestic savings and consumption, the high savings rate, is directly manifested in the excess funds in the banking system, which leads to excessive money and credit, excessive investment growth, and overcapacity in some industries, resulting in rapid export growth and expanding foreign trade surplus. Coupled with the capital account surplus and overseas funds entering from other channels, the national foreign exchange reserves have grown abnormally, making the central bank have to spit out a large amount of base currency for foreign exchange purchase. The base currency is a high-energy currency, which can produce several times multiplier effect in commercial banks. Although the central bank has taken various measures to hedge and freeze the base currency of commercial banks, the problem of excess liquidity still exists. Therefore, to fundamentally control inflation, we must solve the problem of liquidity in the banking system’s surplus, which in turn must solve the imbalance between domestic savings and consumption and the imbalance between internal and external demand.

　　Analysis of economic trend this year and next.

　　Recently, some commentators believe that the current economic situation in China is very similar to that in 1998, and it is very likely that there will be an economic downturn this year and next. Judging from the external environment and export situation, this year is indeed somewhat similar to 10 years ago: in 1998, affected by the Asian financial crisis, China’s exports fell sharply, with an increase of only 0.5% in 1998 and 6.1% in 1999. This year, affected by the subprime mortgage crisis in the United States, the American economy is on the verge of recession, and the growth rate of the world economy has slowed down significantly. China’s export situation is grim. On the one hand, external demand is weakening, and the export market is facing the risk of shrinking. On the other hand, due to the acceleration of RMB appreciation, rising prices of raw materials, rising labor costs, rising interest rates and the adjustment of foreign trade policies last year, the export costs of enterprises have increased significantly. From January to May this year, exports increased by 22.9% year-on-year. It is unlikely that exports will fall sharply in the first half of this year. However, if the domestic and international environment continues to tighten in the second half of this year, some enterprises, especially small and medium-sized enterprises and labor-intensive enterprises, will find it difficult to support them, and the export growth rate may fall sharply.

　　However, whether the economic growth will drop sharply this year and next depends on whether the external environment deteriorates further and whether the export growth rate will fall below 10%. On the other hand, it also depends on the growth of domestic investment and consumer demand. On the other hand, the situation this year is very different from that in 1998. In 1998, the GDP growth rate dropped from 9.3% in 1997 to 7.8%, and further dropped to 7.6% in 1999, which was the result of the simultaneous decline of external demand and domestic demand. At that time, the outstanding performance of insufficient domestic demand was the slowdown in investment growth. The growth rate of fixed assets investment was 8.8% in 1997, 5.6 percentage points lower than that in 1996. Although it rose to 13.9% in 1998, it dropped sharply to 5.1% in 1999, down 8.8 percentage points. The growth rate of consumption is also relatively slow, and the total retail sales of social goods in 1998 and 1999 only increased by 6.8% over the previous year. Different from 10 years ago, domestic demand growth in both investment and consumption is still strong this year. From January to May this year, urban fixed assets investment increased by 25.6% year-on-year. From the industry point of view, due to the stimulation of higher prices of primary products in the international market and the strong domestic demand, investment in energy and raw materials industries has grown strongly. Therefore, it is unlikely that the growth rate of fixed assets investment will drop sharply this year compared with last year, and it is expected that the nominal investment growth rate may still remain at around 25%. Domestic consumer demand continued to grow steadily this year, and the total retail sales of social goods in the first quarter increased by 20.6% year-on-year.The actual growth was 12.3%, which was roughly the same as that in the fourth quarter of last year and the same period of last year; In April and May, it increased by 22% and 21.6% respectively. From January to May, it increased by 21.1%, and the trend was similar to that in the first quarter. It is estimated that the annual growth of consumer demand may still maintain the trend of the first five months.

　　To sum up, it is estimated that the GDP growth rate will be around 10% this year, which is a normal adjustment in line with the expected goal of macro-control, and is still in the range of 9%-10% of China’s economic potential growth rate. Even if the external environment continues to deteriorate and the domestic investment growth fluctuates downwards next year, the GDP growth rate may fall back to 8%-9%, but stagflation will not occur. (Lin Zhaomu)

　　Finding the best balance between economic growth and curbing inflationary pressure is undoubtedly the biggest test faced by macro-control policies at present. At present, the trend of global economic slowdown and rising inflation has taken shape. For China’s economy, which has been integrated into economic globalization, it is more affected by the international economy than before, so it is naturally difficult to carry out macro-control. In the process of seeking the best balance between economic growth and curbing inflationary pressure, the following points need special attention.

　　According to a report on monitoring and early warning of China’s economic prosperity recently released by the State Information Center, the consistent composite index that comprehensively reflects the macro-economic operation has dropped slightly for seven consecutive months, and the leading index that describes the future economic trend has continued to decline, and the economic prosperity has continued to decline at a high level, and "the risk of turning from fast to overheated has basically been lifted".

Editor: Feng Ye