of China and the Yangtze River Delta
at the Turn of 2004 and 2005
Shanghai Flash N° 3/2005 pdf-version
Have macro-control measures worked?
wheels of China’s economy sped by the finishing line of
- Chinese Premier Wen Jiabao, 2004 Government Work Report
full calendar year of macro-control aiming at cooling down the
overheated sectors, China’s economy reported 9.5% growth
with its GDP totalling 13.65 trillion yuan (US$ 1.65 trillion),
consolidating its position as the world’s fastest growing
economy. The Yangtze Delta Region, embracing the city of Shanghai
and the two provinces of Jiangsu and Zhejiang, continues to play
a locomotive role in the country’s economy, in particular
in the fields of investment and foreign trade.
a “threatening but not dangerous” year for China,
as reviewed by some Chinese economists. The economic growth was
the fastest for the last eight years, exceeding economists’
forecasts and lying well above the official target of 7%. Investment,
export and consumption remained the key drivers of the economy,
but the structure of the economy has improved. Although fixed-asset
investment surged by 25.8%, it dropped 1.9% from the pace recorded
in 2003, and 43% from the 1st quarter of the year. In the meantime,
growth in industrial output also slowed down due to the macro-control
measures, while sectors like consumer goods, services and export
manufacturing, which were not targeted by the authority, grew
faster than the year before. Overall, the respective growth rate
for the four quarters were 9.8%, 9.6%, 9.1% and 9.5%. The fourth
quarter’s rebound was largely due to the grain harvests
and service expansions, reflecting the growth of the primary and
speaking, China’s economy has maintained a stable and relatively
fast growth trend, while fighting both inflation and deflation.
Yangtze Delta Region
as the world's sixth largest metropolitan area, the Yangtze Delta
Region is one of China’s most developed regions in economic
terms. With only 2.2% of the country’s land area and 10.4%
of the total population, it contributed 25% of China’s GDP
and provided 36% of total foreign trade. As the most popular foreign
investment destination, it attracted 41.8% of the country’s
total actually utilised FDI (foreign direct investment) last year.
leads the region by offering an international platform. In 2004,
its GDP topped 744 billion yuan (US$ 90 billion) with a year on
year rise of 13.5%, the second highest for the last ten years
and the 13th consecutive year of double-digit growth. The respective
contributions of the three sectors of the economy to the city’s
GDP was 1.3%; 50.8%; 47.9%.
Province, the second largest provincial economy after Guangdong
Province, reported a GDP of 1551.2 billion yuan (US$ 186.9 billion),
an increase of 14.9% over the previous year, and 6.4 percentages
higher than the national average, with shares of the three economic
sectors standing at 8.5%; 56.6%; and 34.0%.
Province is ranked the fourth provincial economy after Guangdong,
Jiangsu and Shandong Province. Last year, its GDP exceeded the
trillion-yuan-mark with an increase of 14.3% to the amount of
1124.3 billion yuan (US$ 135.95 billion), and the percentages
of the three industries as 7.3%: 53.7%: 39%. Measured by per capita
GDP (23,942 yuan or US$ 2,895), Zhejiang is the richest province
investment: declined from a hot point, but still a main driver
fixed-asset investment hit a 10-year high in the January to March
period of last year, growing 43%. The cooling down measures took
effect and slowed the growth down to 25.8% for the whole year
to 7.01 trillion yuan (US$ 840 billion).
In the Yangtze
Delta region, Shanghai had the same growth rate of 25.8% with
total investment of 308.47 billion yuan (US$ 37.25 billion), which
were mostly used for large infrastructure projects, 2010 Shanghai
Expo projects, as well as real estate constructions. In Jiangsu
Province, the investment totalled 682.76 billion yuan (US$ 82.46
billion), a rise of 28%, with 52.6% of which from non-state investors,
while in Zhejiang Province, 66.8% of the total 594.5 billion
yuan (US$ 71.8 billion) (20.2% up from the previous year) fixed-asset
investment were from non-state investors.
the overheated sectors such as steel, cement, aluminium, and real
estate had cooled down, but investment in energy, transportation,
consumer goods, service and export manufacturing were further
strengthened. Overall, fixed-asset investments still accounted
for 51% of the total GDP, while consumption was responsible for
a mere 39.5%.
Consumption: expanded considerably, possibly becomes future driving
policies to boost consumption have paid out, retail sales growth
rate increased from 9.0% in the year before to 13.3% in 2004,
reaching 5.395 trillion yuan (US$ 651 billion), which also reflected
an increase of personal incomes for Chinese consumers. In 2004
the per capita net income of China’s rural residents increased
6.8% year-on-year to 2,936 yuan (US$ 355), the highest growth
in seven years since 1997, while per capita disposable income
of urban residents increased 7.7% to 9,422 yuan (US$ 1,138). By
the end of 2004, the saving deposits of the urban and rural population
stood in excess of 11.95 trillion yuan (US$ 1.44 trillion), an
increase of 1.59 trillion yuan from the end of the previous year.
and service consumption were the highlights of last year’s
consumer spending. The fast increasing rural income supported
by a favourable agricultural policy has lifted the sluggish rural
consumption and household electrics became a new focus of spending.
In the cities, consumption in dining and tourism made a much bigger
contribution to the overall consumption. Last year, some 28.5
million Chinese people travelled abroad, up 41% from 2003, and
domestic travellers added 400 billion yuan (US$ 48.3 billion)
to the tourism income.
also gained in the Yangtze Delta region. Shanghai
reported total retail sales of 245.46 billion yuan (US$ 29.6 billion),
up 10.5% from 2003, also the fastest growth for the last six years;
in Jiangsu it was 415.97 billion yuan (US$ 50.2 billion),
up 16.6% while in Zhejiang it totalled 364.5 billion yuan
(US$ 44.0billion) with a 15.5% increase over the previous year.
control has curbed investments in several of the overheated sectors
of the regional economy, which has resulted in the economy to
depend more on household spending and trade.
upgrading of the consumption structure from food, clothes and
household necessities, to houses, cars, education, and travels,
it will hopefully become a new driving force of the economy.
Trade: another engine of growth
imports and exports remained on the fast track last year. Foreign
trade jumped 35.7 percent to US$ 1.1547 trillion, including exports
of US$ 593.4 billion and imports of US$ 561.4 billion, which were
35.4% and 36% higher respectively year-on-year, as the trade surplus
grew US$ 6.5 billion to reach US$ 32 billion. This was the third
consecutive year that China’s foreign trade reported a growth
of over 30%.
The US, EU
and Hong Kong are the three main trading partners of China. Combined
exports to the three countries reached US$ 332.982 billion in
2004, accounting for 56.12% the total exports, and contributing
to 55% of export growth.
enterprises have dominated China’s foreign trade. Their
export in 2004 accounted for nearly 58% of the total exports,
increasing by 40.9% over 2003. In contrast, state-owned enterprises’
export increased only 11.4% to reach US$ 153.59 billion, accounting
for 25.88% of the total, while private enterprises, as a new competitor,
contributed 17% to the exports.
soared in recent years as the country has bought more raw materials,
energy and machinery to feed its rapidly growing economy. But
decline in investment will translate into a decline in imports,
while the reduction in tariffs, on the other side, combined with
high oil prices, will drive imports upwards.
will then become a more important driver of GDP growth, judging
from the strong trade surplus, which in the mean time, makes China
more dependent on foreign trade with more risks of consecutive
China’s export were the Yangtze Delta Region, with
its 37.39% contribution to the country’s total exports.
Last year, the export volume of Shanghai was US$ 73.52
billion, up 51.6% from 2003; Jiangsu exported goods in
the value of US$ 87.56 billion, an increase of 52.7%, and Zhejiang’s
exports grew 39.8% to US$ 58.16 billion.
relation with the Yangtze Delta Region continued to develop
quickly. As Table 2 shows the region imported goods with a total
value of US$ 1,489.14 million from Switzerland in 2004, an increase
of 54.5% over the previous year, and exported a total value of
US$ 546.78 million to Switzerland with an increase of 80.9%. The
growth rates of both exports and imports are much higher than
the average of the region, reflecting closer trade relation between
Switzerland and the Yangtze Delta Region. Machines, high-tech
products and raw materials made the majority of the imports, in
terms of commodity brackets, while light industrial products were
the main exported goods to Switzerland. With the expansion of
the Swiss presence in the region, Swiss-invested companies also
contributed a considerable part to the total export volume. It
is also noteworthy that all the figures do not include the indirect
trade via Hong Kong, therefore the numbers do not show the increasing
demands of high quality Swiss made consumers goods, which are
mainly distributed by Hong Kong agencies.
Investment: steady increase, with new destinations
In 2004, the
tightening policy did not influence foreign direct investment
(FDI) to mainland China. The actually utilised volume grew 13.3%
to reach US$ 60.63 billion, while the contractual volume of FDI
totalled US$ 153.48 billion, an increase of 33.4% on a year-on-year
FDI totalled US$ 1.097 trillion by December of 2004, of which
562.1 billion have been materialized, making it still the most
preferred FDI destination world-wide.
are quickening their steps to enter China’s market. According
to the information from China’s Ministry of Commerce (MOFCOM),
450 out of the top 500 multinationals have set up their manufacturing
bases in China.
traditional sectors like manufactures, electric machinery and
other high-tech areas, M&A and outsourcing have become new
trends of FDI in China, while R&D centres, regional headquarters
as well as the service sector have increasing their respective
shares of the total investment. However, it is noteworthy that
at least two thirds of the capital under the heading of FDI is
still coming from different ethnic Chinese sources.
Situation in Yangtze Delta Region
Yangtze Delta Region has still seen an influx of foreign investment,
the growth paces have been slowing down considerably. Last year,
the total materialised FDI in the region was US$ 25.36 billion,
accounting for 41.8% of the country’s total, compared to
51% in 2003. The actually utilised FDI in Shanghai was
US$ 6.54 billion, with 12.6% growth rate, down 10.9% from 2003;
the number for Jiangsu was US$ 12.1 billion, an increase
of 17.1% (56.6% in 2003); in Zhejiang, it amounted to US$
14.56 billion, with an increase rate of 20.8%, compared to 77.5%
in 2003. The sharp decline of FDI growth rate reflects a new direction
of foreign investment.
economic map, three city clusters form the most preferred FDI
destinations: the traditional Pearl Delta Region, the Yangtze
Delta Region, and emerging Bohai Bay Rim, led by Beijing and Tianjin.
The fast growing business costs, expensive land, a shrinking base
of migrant workers as well as power shortage in the two delta
regions have resulted in the move of FDI to the old industrial
bases in north China, where they have the advantages of a preferential
policy, sufficient skilled workers from the former state-owned
heavy industry factories and relatively low-priced land. More
and more multinationals start to set up regional headquarters
in East China and manufacturing bases in the west and the north
of China. On the other hand, investment from ethnic Chinese sources,
which is normally the most mobile part due to their knowledge
of the country and their risk awareness, also transfers to chase
the lowest costs. It is no wander that overseas Chinese investors
are often described as “migratory birds”.
As a result,
the governments in the Yangtze Delta Region adjusted their strategies
in attracting FDI. Due to the limited supply of land and scarce
energy, the cities are more selective in the types of foreign
investment, aiming to increase the proportion of service industry
in relation to total FDI, and lower the proportion of low-end,
labour-intensive industries. Last year the service industry accounted
for 37% of the total FDI in Shanghai, up from 33% in 2003,
and the city expected the figure to grow 1 to 2 percentage points
every year, to more than double the added value from the service
industry, accounting for at least half of the total GDP by year
2010 when Shanghai hosts the 6-month-long World Exposition 2010.
investment is increasing steadily in China and the Yangtze
Delta Region. Last year, there was a total of 88 Swiss-invested
projects in China, with a majority of 75% (66 projects) concentrated
in the Yangtze Delta Region, and a half of them (44 projects)
in Shanghai. By the end of year 2004, Swiss direct investment
totalled UD$ 2,806 million in terms of accumulated contractual
value for 701 projects in China. Among them, UD$ 1,150 million
is located in Shanghai, while the numbers for Jiangsu and Zhejiang
were UD$ 519 million and UD$ 64.8 million respectively (See Table
3). The large number of Swiss companies in the Delta Region is
mainly due to considerable investments of Swiss SMEs around Shanghai.
Will “Soft-Landing” be possible?
economy in the year 2005 is like “sailing against the currents”:
either it keeps forging ahead or it will fall behind.
- Chinese Premier Wen Jiabao, at press conference after the National
is the last year of the 10th Five-Year Plan period (2001 –
2005). At the National People’s Congress held in this March,
the Chinese government outlined a development blueprint for 2005,
highlighting its continued macro-economic control policy.
Targets for 2005
The GDP growth
for this year was targeted at 8%, 1.5% lowers than 2004 rate,
but higher than the 7% forecast issued in the past few years.
This moderate growth was chosen to maintain a relatively rapid
economic growth to create 9 million more jobs, and on the other
hand, to avoid an overheated and unhealthy development.
investment’s target growth rate was set at 16%, still
doubled the targeted GDP growth rate, but down from the 26% of
last year, when fixed-asset investment accounted for half of the
overall economic output.
policy was shifted from "proactive" to "prudent“,
cutting this year's fiscal deficit by 19.8 billion yuan (US$ 2.4
billion) to 300 billion yuan (US$ 36.2 billion), to an estimated
2% of the GDP, 0.5% lower than last year’s figure.
monetary policy was also set to remain "prudent",
being more adaptable to economic environment.
In line with
the central government’s macro-control policy, the local
governments of Shanghai, Jiangsu and Zhejiang set their economic
growth rate simultaneously at 11%, much lower than their
growth rate last year. Shanghai also specified energy consumption
goal at less than1.02 tons of standard coal per 10,000 yuan (US$
1,204) of GDP to ensure a sustainable growth. The 2003 average
was about 1.1 tons.
and opportunities: old and new
showed that the macro-control measures have achieved an initial
success. The economy will continue to boom, at a high growth rate,
probably more than 8% for the nation as a whole, and another double-digit
for the Yangtze Delta Region. In addition to the administrative
measure of tightening credit and land, more economic measures
will be used this year to keep the economy on a fast and stable
against the current”, the economy is facing many challenges,
old and new. The fixed-asset investment grew 24.5% during the
first two months of this year, showing a sign of rebound despite
the central government’s cooling efforts. The bottleneck
of energy supply is still restraining the growth. Although the
electricity supply increased 12% in February, there were 25 provinces
reported black-out in the same period of time again.
One the other
hand, being integrated into the global economy as the world's
3rd largest trading nation and the largest destination of foreign
direct investment, China is also facing challenges from outside:
possible slowdown of the world’s economy, crude oil price
increases, growing trade frictions, and mounting pressures of
revaluation of its currency.
the widening wealth gap and the growing income disparities remained
one of the biggest problems, not only in terms of increased inequality
within urban China, but also in the gap between urban and rural
China and in differences between the eastern coastal cities and
the much poorer western and central provinces. By the end of 2004
income inequality, as measured by the Gini coefficient (where
0 represents an equal distribution of wealth and 1 implies absolute
inequality), had risen to 0.454 (research by Chinese Academy of
Social Sciences), already surpassing the international alarming
point of 0.40. The gap has been growing in recent years. Statistics
showed e.g. that the per capita income gap between the top 10%
and the bottom 10% in Jiangsu Province had doubled from 5.39 tomes
in 2000 to 10.71 times in 2004.
explain that the high expectation for a continued rapid economic
growth has supported a strong psychological tolerance for the
disparity, which has now become a major political issue. The government
has announced its new goal to build a “harmonious society”,
putting increase in rural incomes and in job creation for urban
residents at the top of its agenda.
year, a series of policies have been decided to promote the rural
development. At this year’s National People’s Congress,
the government announced to abolish agricultural tax by 2006,
two years earlier than it had originally planned, and primary-school
fees for all children in rural areas will be also exempt by 2007.
The increased income of the 900 million farmers will hopefully
contribute considerably to the country’s expenditure-side
data, as the base is apparently quite low. It is reported that
nearly 40% of the rural families still don’t have colour
TVs. The change will be more substantial when the rural consumption
will be gradually integrated into rural markets.
burgeoning “middle class”
no definite, official terminology of "middle class"
in China. But some economists and a research conducted by the
National Bureau of Statistics (NBS) suggest those household annual
incomes between 60,000 yuan (US$ 7,230) to 500,000 yuan (US$ 60,240)
should be categorized as medium income earners. About 5.04% of
the population falls into this category and the proportion of
this group is expected to increase to 45% in the year 2020.
criteria varied and the authority declined the definition of the
middle class, this group does lead a new trend of life style and
consumption. In the longer run, an olive-shape society with a
large middle class will be essential for sustainable economic
growth and a “harmonious society“. At the same time,
this will create a base for social stability as well.
With the new
middle class emerges a new life and behavioural style. The group
is responsible for a large percentage of consumption of houses,
cars, travel and sports, and starts to cultivate a loyalty for
The sale of
cars was sluggish compared to that of houses last year. This was
mainly due to the expectation of further cut on prices and growing
traffic bottlenecks. However, China's passenger car sales still
rose 15.17% to 2.33 million units in 2004, and the sales in 2005
are expected to rise 20% to 2.79 million units. It is likely that
the fall in investment as a percentage of GDP will be matched
by a rise in consumption as a percentage of GDP.
on top of the issues
The year 2005
will be a crucial year for reform. The reform of state owned enterprises
and banks has reached the hardcore, and efficiency of investment
is top on the government priorities list. The central government
is determined to ensure a healthy and stable development. What
is crucial however is the implementation at different government
of the National Statistics Bureau (NSB), Mr. Li Deshui, revealed
recently that the GDP figures he received from various provincial
governments were 2.66 trillion yuan (US$ 320 billion) more, or
3.9 percentage points higher, than the counting by his bureau.
The gap between the regional and national statistics regarding
the GDP growth has existed for many years. This shows the obstinate
pursuit for high speed within some regional governments, largely
due to the government official performance evaluation and the
promotion system linked with it.
The GDP growth
rate targets set by localities are all higher than the 8% target
determined by the central government. The fixed-asset investment
in infrastructures and real estate by local governments shows
a sign of rebound despite the cooling-down policy. The central
government is continuing its effort to fight local protectionism
and official corruption, as well as the blind pursuit of high
GDP growth rate, which will, if let uncontrolled, lead to overheated
growth at the expenses of over-used energy and future development.
Sources of Information
Commerce of P.R. China:
Government Foreign Economic Relations & Trade Commission:
of Foreign Trade and Economic Cooperation, Jiangsu Province:
of Foreign Trade and Economic Cooperation, Zhejiang Province:
of Foreign Trade and Economic Cooperation, Anhui Province:
Current Economic Indicators* of the Swiss Consular Area
Retail Sales of Consumer Goods
Investment in Fixed Assets
Direct Investment (during the period)
Authorities * All statistics not including Taiwan, Hong Kong and
Swiss - Yangtze-Delta Region Economic Relations*
end of 2004
* incl. one
withdrawal of investment of UD$ 220 million
** withdrawals deducted already, which explains the unusual difference
between contracted and actually used amounts Source: Chinese authorities
General of Switzerland
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