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NO.1 January 1, 2004
2004/05/22



  • China's Economy Heading Toward a New Era
  • China's Increased Exports Beneficial to Asia
  • Historical Lesson Drawn From the Appreciation of Japanese Yen
  • 'China Craze' Sweeping Across the ROK



    China's Economy Heading Toward a New Era

           China's economy, which withstood severe tests in 2003, has achieved extraordinary results. A spokesman of the National Bureau of Statistics (NBS) recently disclosed that China's economy was estimated to grow by 8.5 percent in 2003, with the GDP exceeding 11 trillion yuan (US$1.33 trillion). This indicates that China's comprehensive national strength will rise to a new level.
       
           According to NBS' reform plan, in the future the estimated annual GDP will be released in late January instead of the end of each year. Taking the 2002 GDP of 10.2 trillion yuan as the base figure, the country's GDP of 2003 is estimated to exceed II trillion yuan.
       
           The rapid economic growth in 2003 was hard won, given the complicated and ever-changing international situation, and the sudden outbreak of SARS and frequent natural disasters in the country.
       
           In the first quarter of 2003, China's economic growth reached 9.9 percent, hitting an all-time high for the same period since 1997. The second quarter registered a growth rate of 6.7 percent, owing to the adverse impacts of SARS and natural disasters. In the third quarter, China's economic growth rate basically resumed the pre-SARS level, reaching 9.1 percent.
       
           Along with its rapid economic growth, China made many new records in its economic life in 2003: Its foreign exchange reserves exceeded US$400 billion; the savings deposits of urban and rural residents topped 10 trillion yuan: the growth of industrial production hit an all-time high since 1995; the total import and export value surpassed that of the previous year: investment in fixed as-sets made a new record; automobiles sell well; the Three Gorges water conservancy project, the south-to-north water diversion project and other key projects proceeded smoothly; and the Shenzhou-5 manned spacecraft was successfully launched.
         
           Maintaining Steady, Rapid Growth
     
           While addressing the 2003 forum on China's economic growth held last November, NBS Director Li Deshui said China's economy is likely to maintain long-term steady and rapid growth, given the conditions, foundation and motive force for growth.
       
           Director Li noted that China has laid a solid material foundation for further economic progress since the founding of the People's Republic in 1949 and particularly after the introduction of reform and opening-up policies in 1978. At present, China's aggregate economy ranks sixth in the world; the output of many industrial and agricultural products, such as raw coal, steel, cement, color TV and mobile phones, comes first in the world; and the country's foreign exchange reserves rank second worldwide. In 2002, the total output of energy was equivalent to 1.39 billion tons of standard coal; the mileage of railways opened to traffic reached 72,000 km; and the length of highways totaled 1.765 million km (including 25,000 km of expressways), ranking second in the world. The Three Gorges project, the west-to-east power transmission project, the west-to-east gas pipelines, the south-to-north water diversion project and other key projects now under construction will create more favorable conditions for China to maintain sustained and rapid economic growth.
       
           China is the largest developing country in the world, with a tremendous potential for development. In addition, the fact that China has 1.3 billion people suggests it can provide a huge potential market. China's limited per-capita GDP has created great room for long-term rapid economic growth. Furthermore, China's labor cost is only 2 percent of that of developed countries, and the quality of labor is improving continuously. With the adjustment of the pattern of international division of labor, the trend of the transfer of global processing industries to China will be irresistible.
     
           Since reform and opening-up, the Chinese Government has accumulated experiences in coping with various complicated situations and sudden events, which will provide an important guarantee for China's long-term economic growth. The implementation of the Decision of the CPC Central Committee on Some Issues Concerning the Improvement of the Socialist Market Economic System will further eliminate institutional barriers that stem the development of productive forces and inject strong vitality into the country's economic development and social progress. The WTO accession and accelerated pace of opening-up will further propel the development of China's economy. The implementation of the strategy of developing the country through science and education and the strategy of relying on talented people to build a powerful country, and the continuous scientific and technological progress are producing a strong motive force for the long-term development of China's economy. China's stable social environment has provided sound conditions for long-term rapid economic growth. The Third Plenary Session of the 16th CPC Central Committee held in October last year put forward the new concept of development of coordinating urban and rural development, coordinating regional development, coordinating economic and social progress, coordinating the development of man and nature, and coordinating domestic development and the requirements of opening-up, which will ensure the sustained, sound and rapid development of China's economy.
       
           Changes in Conditions Supporting Economic Growth

           The question of whether China's economy can maintain sustained and rapid growth became a hot topic at the forum. NBS Deputy Director Qiu Xiaohua noted that China is heading toward a new era of economic development and that six major changes have taken place in conditions supporting the country's economic growth.
     
           First, profound changes have taken place in the institutional mechanism. China is moving toward a complete market economy, which is manifested by the lowered eligibility threshold of market access, relaxed government control, improved investment, financing and legal environment, and more effective utilization of market factors. Second, industries supporting economic growth are no longer traditional labor-intensive industries. Capital- and technology-intensive industries are playing an important role in China's economic growth. For instance, electronic information, real estate and auto industries have become the main force propelling China's economic progress. Third, the market supporting China's economic growth includes both domestic and international markets. Fourth, with enterprises of multiple forms of ownership becoming the mainstay of economic growth, state-owned enterprises will focus on providing a better environment for the development of the whole society and the common progress of all forms of ownership. Fifth, major changes have taken place in regional economic structure. China's economic growth was mainly spurred by the rise of the economy on the Pearl River Delta in the 1980s, and jointly by the swift economic development on the Peal River and Yangtze River deltas in the 1990s. Now, with the all-round development of the national economy, a number of economic spheres will be formed, which, with relatively concentrated industries, can supplement each other in functions. As a result, concentrated industrial production centers will take shape in various parts of the country along with the development of the process of marketization, internationalization and urbanization. Sixth, a new concept that pursues all-round, coordinated and sustainable development has replaced the old concept that simply sought for the growth of GDP.
       
           Win-win Relationship Between China's Economy and the World Economy
       
           Deputy Director Qiu said China's economy, now in a new era, would make more remarkable contributions to the global economy. He hoped the international community could understand the win-win relationship between China's economy and the world economy. Supporting China's economy is to support the economy of one's own country and the global economy at large, he added.
     
           The forum reached consensus on some major issues related to China's economic growth.
     
           First, China's economy is expected to maintain steady growth in the coming 10-odd years, and the pace of development will remain unchanged.
       
           Second, the rapid development of China's economy will bring benefits but not trouble to the global economy. A win-win result is highly possible for China's economy and the global economy. During the course, China's external market will expand further and China's comparative advantages will be brought into full play. In fact, China does have made special contributions to the global economy. While WTO members require China to open its market wider, China has provided transnational companies with numerous profit-making opportunities and production bases.
       
           Third, at present, China needs to solve both old problems accumulated in history and new problems accruing in economic operation. Among those problems faced by China, the most imminent ones are how to maintain financial stability, how to create more job opportunities and how to improve the income distribution system.
       
           Fourth, conditions are available for Chinese enterprises to make their way into the world. They can cultivate their competitiveness only by going out.
       
           Fifth, local governments assume special responsibilities for creating a sound business management environment. Real competitive advantages lie in industrial concentration and a sound soft environment.
       
           Sixth, since China's continuous economic development mainly relied on leading industries, the selection and cultivation of leading industries have a close bearing on future economic growth.
       
           Seven, China's economic development relies on the growth of enterprises, while the growth of the latter relies on the maturity of entrepreneurs. This calls for the efforts to cultivate and carry forward the genuine spirit of entrepreneurs.
       
           Eighth, in general, China's statistics are reliable, although there are various problems.
       
           Ninth, China's economic growth is ascending a new level and heading toward a new ear.
     
           In conclusion, Deputy Director Qiu noted that China's economy is in an important stage with opportunities brought about by efforts to build an all-round well-off society and improve the socialist market economic system. The new concept of development greatly impacted the 2003 economy. China's economy has already entered a new period of rapid growth. As China's aggregate economy is growing larger and larger, the internal structure is becoming more and more complicated and the forces supporting economic growth are becoming more and more diversified, it is becoming more and more difficult to understand China's economy. These difficulties will draw growing attention from the world and stimulate China to seriously explore ways to solve them. The new era will see increasing vitality of businesses launched by individuals, greater impetus to innovation by enterprises, further improvement in the government's capacity of scientific management, more affluent life of the people, and closer relations between China and the world.




    China's Increased Exports Beneficial to Asia

           With the rapid development of China's economy, a hullabaloo about the so-called economic threat from China has been raised throughout the world, some Asian countries included. They claim that a powerful China will bring adverse impact to other Asian countries and worry that China's increased exports will snatch greater market shares from them. To find out the truth with regard to this question is of primary importance to the sound development of economic and trade relations between China and other Asian countries, and to furthering regional cooperation in Asia.
       
           After more than 20 years of reform and opening-up, China has embarked on the road of development of an open and export-oriented economy. With this mode of development, China has been playing an increasingly significant role in global links of production and supply, which has exerted ever-growing influences to other Asian countries and boosted their exports to it. Take Singapore for example. In the first nine months of last year, Singapore's exports to China reached S$30.6 billion, surpassing the amount of that to the United States for the first time. China has become the largest market worldwide for products made in Singapore. In addition, many other Asian countries, such as Japan, the Republic of Korea, the Philippines, Thailand and Malaysia, drastically increased their exports to China in the first three quarters of last year, turning China into the main destination of their exports. According to researches conducted by an American economist, the exports of other Asian countries to China jumped from US$72.1 billion in 1995 to US$160.6 billion in 2002. The imports of China during the same period for domestic consumption soared from US$42.2 billion to US$78.7 billion and those for reprocessing from US$29.8 billion to US$81.9 billion. The proportion of goods imported by China from other Asian countries for reprocessing increased from 41 percent to 51 percent in 2002. The considerable increase in China's import of components, parts and raw materials for reprocessing has resulted in China's huge trade surplus with North American and West European countries and trade deficit with other Asian countries.
     
           The aforementioned facts indicate that China has propelled other Asian countries' exports to it while increasing its own exports to the world market. According to analyses made by American scholars, a considerable part of products exported by China to North American and West European countries are processed with components, parts and raw materials imported from other Asian countries. This can be proved by the changes in the structure of countries from where the United States imports commodities. The United States now imports from China many manufactured goods it used to import from Singapore, the Republic of Korea, Thailand and other Asian countries. But, a considerable part of these manufactured goods are processed with parts and raw materials imported by China from other Asian countries.
     
           Changes in the trade structure represent a normal phenomenon in the development of globalization and regionalization, and an inevitable result of the optimization of inter-country resources allocation. The prominent advantage of China, the most populous developing country, is its possession of plentiful low-cost labor. China does not enjoy this advantage on its own, but shares it with other Asian countries.
     
           China takes advantage of its rich labor resources to process parts and raw materials imported from other Asian countries and then exports the manufactured goods to North American and West European countries. Though this is a mutually beneficial and win-win relationship, in trade statistics, other Asian countries' income from selling parts and raw materials to China is credited to China's exports to North American and West European countries, thus greatly increasing China's trade surplus with these countries. In fact, to other Asian countries, China's increased exports have played a positive role of dual significance.




    Historical Lesson Drawn From the Appreciation of Japanese Yen

    By Jiang Duanping, head of the Department of Economics of the Foreign Affairs Institute

           With the aim of pressing the revaluation of China's Renminbi (RMB), recently some Japanese politicians have been going canvassing for reaching an agreement similar to the 1985 Plaza Agreement that forced the Japanese yen to appreciate. What's the background of the Plaza Agreement? Who staged the agreement? What has the appreciation of the yen brought to the Japanese economy? Why does the Japanese Government persist in the "low yen" policy and even attempt to shift its own trouble to others?
     
           Appreciation of the Japanese Yen
     
           After the disintegration of the Bretton Wood system in the 1970s, the Japanese yen began to be subjected to a regulated floating exchange rate system, and the yen-USS exchange rate began to appreciate from the fixed rate of 360:1. By September 1985 when the Plaza Agreement was signed, the yen-USS exchange rate had risen to 240:1. However, the US Government was still unsatisfied with such drastic revaluation of the Japanese yen, claiming that America's huge trade surplus with Japan was due to the excessive devaluation of the yen, which enhanced the competitiveness of Japanese products against US-made goods. After unfavorable balance appeared in America's trade with Japan in the mid- 1960s, the gap kept growing, reaching US$33.08 billion in 1984, or 1.23 times that of America's exports to Japan. In order to reduce its financial and trade deficits, the then Reagan administration entrusted its treasury secretary Baker to call a meeting at the New York Plaza Hotel (hence the name Plaza Meeting) on September 22, 1985, with the participation of treasury secretaries of five major Western countries. Engineered by the United States, the meeting reached the Plaza Agreement, with the main content of urging the appreciation of the currencies of the other four countries, particularly the yen and Deutsch mark, through the five's joint interference in the exchange market.
       
           Under the pressure from the US side, the Japanese Government and the Japanese central bank "loyally" fulfilled the Plaza Agreement, by interfering in the exchange rate market of the yen on a large scale. As a result, the yen-USS exchange rate soared rapidly, breaking the rate of 200:1 at the end of 1985, further reaching 150:1 in early 1987 and approaching 120: I in early 1988. This means that in less than two and a half years, the yen's exchange rate with the US dollar appreciated 100 percent.
       
           Appreciation Leads to Recession
       
           As everybody knows, to a great extent, the post-war sustained and rapid growth of the Japanese economy relied on swift expansion of foreign trade, and the rapid increase in Japan's export trade was greatly based on the yen's low exchange rate. The direct consequence of the considerable appreciation of the yen after the Plaza Agreement was that Japan's foreign trade was severely battered. This led the Japanese economy, which greatly relied on external demand, to recession. In 1986, Japan's export volume decreased by 15.4 percent, the actual growth rate of the country's GDP dropped by I percentage point, the production index of industrial and mining sectors showed a negative growth of 0.2 percentage point, and the unemployment rate broke the postwar record.
     
           To get rid of economic recession brought about by the appreciation of the yen, the Japanese Government and Japan's central bank adopted a series of strong policies and measures, including the financial relaxation policy--an unprecedented one launched after the war. The Japanese bank lowered the yen's interest rate for five times in succession, to the extra-low level of 2.5 percent. Under the background of all-round financial liberalization and reduced capital needed by economic entities, the extra-low interest rate led to the influx of surplus capital to stock and real estate markets. This resulted in a bubble economy mainly propped up by soaring stock and land prices. By the end of 1989, Nikkei's average stock price had jumped to 38,900 yen, up 200 percent in four years. In 1988, the land price in Japan's three metropolis spheres rose by 43.8 percent over the previous year, with that in Tokyo increasing by 65.3 percent.
       
           In the early 1990s, the bubble economy spurred by yen's appreciation was shattered. After that, the Japanese economy sank into recession of an unprecedented extent and still has not extricated itself from it today. During the decade-long economic recession, almost all Japan's major economic indexes dropped to the lowest level after the war. It's worth noting that Japan's long-term advantageous position in the Western world's post-war economic growth pattern, particularly its competitive advantages against the United States, was lost during the economic recession. People may conclude that the United States has eventually beaten its largest adversary in international economic and trade field after many years of efforts since the appreciation of the yen under the pressure of the Plaza Agreement.
       
           Sticking to the Low-Yen Policy
     
           The appreciation of the yen under pressure and the ensuing economic recession and shattered bubble economy gave Japan a bitter lesson. Drawing from this lesson, the Japanese Government has increasingly tilted to take the low-yen policy as its dominant exchange rate policy, and even made it the key content of its overall foreign economic policy and macro-control system. To achieve this, the Japanese Government has sought various ways to benefit itself at the expense of others and shift its own trouble to them. A typical example is that before and after the outbreak of the Asian financial crisis in 1997, under the manipulation and impact of the Japanese authorities, the yen-USS exchange rate was devalued from the highest 79:1 to 147:1 in 1998. This, to a great extent, triggered and worsened the Asian financial crisis. Furthermore, the main countermeasure adopted by the Japanese authorities was to put huge amounts of yen in the exchange market to purchase US dollar, thereby preventing the appreciation of the yen. According to the latest figures published by Japan's Ministry of Finance, in the first seven months of 2003 the Japanese authorities put more than 9 trillion yen in the exchange market, breaking the historical record of 7.6 trillion yen for the whole year of 1999. The effort aims to keep the yen-USS exchange rate under the benchmark level of 115:1 that Japanese export enterprises can bear.
       
           Furthermore, the relevant Japanese Government department attempts to take the effort of forcing the RMB to appreciate as a main means to materialize the low-yen policy. For instance, at the meeting of G-7 treasury secretaries and central bank governors held in February 2003, Japanese minister of finance attempted to engineer an agreement similar to the Plaza Agreement. At the Asia-Europe economic ministerial meeting held in July 2003, the Japanese representative claimed that the extra-low RMB exchange rate is the principal reason for global deflation. It showed Japan's attempt to join hands with the United States to press up the RMB exchange rate. The problem is if the RMB is appreciated under pressure, China's economy may suffer attacks like those brought about by the appreciation of the yen. In that case, the Japanese economy cannot enjoy the benefits pursued by the Japanese Government.




    'China Craze' Sweeping Across the ROK

    People's Daily Delegation

           ROK (the Republic of Korea) culture and fashion have gained increasing popularity in large Chinese cities in recent years, strongly influencing the young generation.
     
           While China is experiencing the "ROK fad", a "China craze" is sweeping across the ROK too. During the recent one-week tour in the country, we deeply felt the mutual motivation of these trends, which are branded with the two peoples' profound friendship sealed through long-term exchange in history and demonstrate the two countries' good aspiration for achieving common prosperity.
       
           Signs with Chinese characters can be seen in many public places in the ROK, such as the airport we landed, car parks, telephone kiosks and restaurants. We learned that Chinese characters were used to record history in the country in ancient times until the 15th century when Korean script was created. However, Chinese characters were still a component part of the Korean written language and were only pronounced differently. So, signs with Chinese characters can still be found in places with cultural traditions today. As Chinese characters are phasing out from the Korean script in recent years, signs with simplified Chinese characters have been made especially for the ever-growing Chinese tourists.
       
           Over the past 11 years since China and the ROK established diplomatic relations, the political, economic and cultural exchanges between the two countries have become increasingly frequent, which helped usher in the current ROK fad and China craze.
       
           China now has become the ROK's most important trading partner, with bilateral trade volume jumping from US$5 billion in 1992 to US$44.071 billion in 2002. The first 10 months of 2003 saw a 43-percent increase in bilateral trade as compared with the same period of the previous year.
       
           China is also the ROK's largest overseas investment destination. In 2002, ROK investment in China increased by 47 percent on the previous year and surpassed that in the United States for the first time. The number of ROK-funded projects in China rose to 1,266 in 2002. Many large ROK enterprises have seen good prospects in China. Samsung and some other brand names have established R&D centers in China. The areas favored by ROK investors have also been extended from the Bohai Sea Rim to the Yangtze River Delta with Shanghai as its center and inland regions.
       
           In addition, China is now the ROK people's largest tourist resort. Its near distance to the ROK, low cost, long-standing history and numerous scenic wonders have attracted a growing number of ROK tourists each year. In 2002, China hosted 2.12 million ROK tourists. In the past decade, 10 million ROK people have visited China. This suggests one of every four South Koreans has been to China.
       
           The close economic and cultural ties between the two countries have triggered a Chinese language learning craze in the ROK.
       
           The Chinese language proficiency test has been conducted in the ROK for 10 years. Li Bin, Chinese ambassador to the ROK, disclosed that only 60 people attended the test in the first year. The number of applicants increased to 7,000 in 2001 and further to 13,000 in 2002 and 20,000 in 2003. Since only 700 people can take the examination each year, the applicants have to queue up for their chances. In the ROK, one of every two senior middle school graduates can enter the university. In 2002, however, 46 students applied for one seat in the Chinese Department of the ROK Foreign Languages University.
       
           Chinese language teaching materials are well received in bookstores, with the sales volume only second to that of English textbooks. Some I million South Koreans are studying Chinese now, and many large and medium-sized enterprises have opened spare-time Chinese language learning courses.
       
           To study in China has become the vogue of the day for young South Koreans since the 1990s. However, in the 1970s, the first choice was the United States and in the 1980s, Japan. At present, the number of ROK students in the United States and China is 50,000 and 40,000 respectively. But many ROK students in the United States receive scholarships, while all ROK students in China are self-paid.
       
           The ROK media has increased reports about China. Korea Herald, ROK's leading economic paper, published its Chinese edition in 2003. The paper's manager, a Harvard PhD in his early 30s, said the Chinese edition has been well received, particularly by large enterprises. Some other ROK newspapers have followed suit.
       
           Chinese TV programs are available in Seoul. In addition to the mainland's CCTV4 and Hong Kong's Phoenix TV, the ROK has launched a Chinese language TV station named Good TV.
     
           The South Koreans cherish good feelings for China. Ambassador Li said during the World Football Cup, most of the spectators waving Chinese flags and cheering for the Chinese team were South Koreans. A Chinese resident correspondent in the ROK said once he left a set of cameras worth 200,000 yuan in a taxi. He called the Seoul Police Bureau for help. The local policemen inquired 10,000 taxi drivers and found the driver in question who was patiently waiting at home for the owner.
     
           Everywhere in the ROK, we could feel the local people's friendly sentiments for the Chinese people, which made us find this foreign land a home from home.





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