MONEY MATTERS

A few analysts have welcomed the slow down in the GDP growth rate as it reflects the beginning of a balance that the economy needs. The export dependent, GDP focussed approach has defined China’s rise over the past two decades. The government has set the annual growth target for the next five years at 7%, whereas the average growth of the past five years had been 11.2%.

The housing market, which was creating a fear of a bubble by its steep rise during the last year, has come to a stable level. The introduction of new property taxes and curb on buying second homes are the main reasons for the fall in real estate investments. The growth of Chinese economy was 9.2% last year whereas it was 10.3% in 2010. The growth in 2012 is expected to be 8.5%. But GDP growth is no longer the aim of economic policy, as rising inequality and increasing concerns over environment have to be taken care of in the first place.

The up coming year has many challenges for the growth of Chinese economy. The mounting local government debt, a legacy of $586 billion stimulus plan, which includes investments in major infrastructure projects and massive lending, is a great concern for the economists. The bigger challenge is to bring a balanced growth in the economy, which is now reliant on export and government –led fixed asset investments. The foreign investments have declined by 12.7%, in the year 2011. For the first time since 2009, FDI declined to 9.8%. FDI figures in 2011 still reached a record $116 billion, growing by 9.7%.

In the coming year, China must succeed to drive its growth from within, to cushion the external demand weakness. Urbanization has exceeded by 50% and this is an optimistic point for the Chinese economy. Urban residents outnumber rural ones and they help drive the rate of consumption with their per capita income growing 14% last year.

Filed under: Uncategorized by SAJ