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How China Maintains Robust, Soaring Economy
2004/10/26
The outbreak of severe acute respiratory syndrome (SARS) has not altered the robust nature of China's soaring economy.

It is thanks to the government's effective anti-SARS measures, the accelerating expansion of the Chinese economy, the upgrading demand of consumption and the continuous influx of foreign capital that China was capable of withstanding the SARS impact and maintaining rapid economic growth, said Fan Jianping, an economic forecaster with the State Information Center (SIC).

The World Bank estimated that China's economic growth dropped sharply from 9.9 percent in the first quarter to 6.5 to 7 percent in the second due to SARS, and the SIC calculated a higher loss from SARS than from the Asian financial crisis in 1997.

However, international economic organizations insist that China's gross domestic product will attain an eight percent growth rate in 2003.

A CASS (Chinese Academy of Social Sciences) report said SARS is an external impact rather than an economic crisis, so its influence on the economy is limited, temporary and relatively easily dispelled.

International financial organizations, including Morgan Stanley, successively raised their predictions on China's economic growth after the Chinese government checked the epidemic within three months and took measures to minimize its effect, and as people have quickly regained confidence in the economy.

Deepak Bhattasali, lead economist with the World Bank Office in Beijing, said China's economy is in the rising phase of its economic cycle, which helped it to bear the external impact.

Echoing this point, the Development Research Center of the State Council declared that China's economy entered a new round of expansion in 2003 after a seven-year slowdown, thanks to the government's stimulating policies of raising fiscal expenditure and money supply in the past five years.

The power of the policies came into full play in the first half of 2003, said the research center, noting that enterprises eager to invest and prepare for a fresh expansion by renewing equipment and technology on a large scale and rising demand for housing and cars triggered a rapidly-growing demand for steel, energy and building materials, which in turn led to short-supply of electricity and rising prices for raw materials.

Ultimately, China shook off its persistent deflation trend after five years' striving, according to the research center.

Mutilnationals continue to invest in China despite SARS, and foreign investment in China increased by nearly 50 percent in the January-May period from a year earlier. Exports also avoided excessive losses from SARS, because half of China's export products came processing trade, which is mainly for multinationals.

Economists also realized that SARS did bring problems to China's economy. CASS economist Wang Tongsan warned of the severity of SARS-caused unemployment. He said SARS hurt the service sector, China's major job provider, most seriously, which might influence the employment situation, residents' income and the fiscal deficit.

The important thing now is to prevent large economic fluctuations and try to extend the expansion period, so as to forma favorable cycle of increasing job opportunities, residents' income, consumption and investment, suggested Fan with SIC.

The Chinese economy has endured various challenges in recent years and showed ever-increasing stability. Its performance during the Asian financial crisis, the Sept. 11 terrorists attack in the United States and the Iraq war impressed the world deeply.

The Chinese government learnt how to deal with crisis from its SARS experience. It further stressed the coordination of fiscal policy, monetary policy and exchange rate policy, and adjusted the structure of fiscal expenditure while maintaining proper expenditure scale, said Bhattasali.

He predicted that China's economy will begin to rise in the third quarter although the SARS impact will linger for some time.

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