Observers Debate Meaning of China's 9.5 Percent Growth Rate
China's National Bureau of Statistics released figures that showed that the Chinese economy had grown by 9.5% in 2004 despite efforts to slow down the economy. Many economists felt that this showed that the Chinese economy was continuing to overheat, and that the Chinese central government and bank were unable to rein in spending by local governments.
In China, things are never that simple.
More and more, Chinese consumer spending is playing a major role in growth. This is an area which the Chinese government simply does not have control, as the share of the state-owned sector continues to shrink. Private enterprise businesses are taking up the slack, replacing many areas which were controlled by state-owned enterprises.
The most visible area where the shift from state-owned assets to private sector growth is taking place is in commercial and residential real estate development. Land, which had always been a state-owned asset, is shifiting into the hands of private developers in record amounts, who are in turn selling it to Chinese families who are anxious to own their own homes.
Since local government and party officials have the final say as to which developer gets which piece of land for development at what price, this has created a major issue when it comes to abuse of power within the party and government. This is why Chinese president Hu Jintao has ranked fighting corruption as one of the leading issues of his administration.
While this is a major issue which can threaten the government's reputation, the fact is that average urban Chinese are doing well, and their standard of living continues to improve. In southern China, where salaries in foreign-owned (mainly Taiwanese) factories have failed to keep pace, there is a labor shortage of two million. Because there is production over-capacity and margins are razor-thin, most of the manufacturers have been slow to offer higher wages. It is likely that a large number of these factories will need to close if they do not have sufficient orders.
In this writer's view, more demand for manufactured goods will come from Chinese consumers, as opposed to European, Japanese and North American consumers. This trend will continue to pick up pace in 2005, with a crossover to domestic demand taking the majority of domestic production happening sometime between 2008 and 2010.
By that time, the Chinese consumer will become the locomotive driving the world's economy, replacing the position currently occupied by the US consumer.
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