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Flexible Macro Policies Prepare China for Financial Turmoil

Facing the financial tsunami, Chinese officials were confident they would be able to deal with the crisis. Observers said the confidence came from an overall and flexible management of the country's economy.

The US-born financial crisis dragged the world economy into a tight spot. The International Monetary Fund chief Dominique Strauss-Kahn said the emerging economies might brace for slacking exports, falling material prices and shrinking foreign investments.

The country's economic growth dipped to 9.9 percent from January to September. It was 2.3 percentage points lower than the same period last year. The National Bureau of Statistics (NBS) ascribed 1.2 percentage points of the growth reduction to declining net exports of goods and services.

Zhang Junsheng, a foreign trade expert with the Beijing-based University of International Business and Economics, said the slower export growth was reasonable owing to the economic downturn in the US and Europe and the 22-percent growth was a pretty good one.

He said people worried about slowing exports because the growth rate beat their high expectations built on a sound world economy.

Despite the US, Europe and Japan had been major destinations of the country's exports, the authorities had begun developing other markets such as Africa and Latin America as early as in 1997, he added.

In addition, the country's exports of daily necessities were stronger than luxury commodities. Fan Gang, a member of the Monetary Policy Committee under the central bank, said the financial crisis would increase people's demand for living essentials and this could be beneficial to China's export.

However, export enterprises still moaned with squeezed profits. The country's Ministry of Finance adjusted export tax rebates on October 21 to counter the slump. It raised rebates on more than 3,000 items such as textiles, garments and toys, among many others.

This move came after measures to increase credit supply and standardize foreign exchange management.

On October 22, a series of policies were issued to boost the property market. They included tax exemptions and mortgage deposit reductions.

Zhang Hanya, a researcher with the National Development and Reform Commission, said the recent adjustments would ease the credit crunch of many enterprises and would be conducive to sustain the consumption growth.

Retail sales gained 22 percent in the first nine months. It was 6.1 percentage points higher than the same period last year, according to the NBS.

Zhang was confident about the country's economic prospect, saying a 27-percent growth of fixed assets investment between Jan. and Sept. was an exciting one. Besides, the government had vowed to further increase investment.

Guosen Securities Analyst Lin Songli said the cooling world economy resulted in drops of material prices, but it helped pare cost for the country's enterprises which imported materials heavily.

Currently, there is no sign of a shortage in foreign capital. From Jan. to Sept., the amount of actually-used foreign capital rose almost 40 percent, 29 percentage points higher from a year earlier. In fact, the country was even counted on to save the world from the financial crisis.

Fan Jianping, chief economist of the State Information Center, believed the severe export situation would press export enterprises to step up reforms and technical upgrading. Meanwhile, the government's moves to expand internal demand would offset the losses caused by weakening external demand.

The communique of the Third Plenary Session of the 17th Communist Party of China Central Committee had urged an expansion of internal demand, especially the consumption demand.

Fan said the breakthrough in rural land circulation would be an incentive to consumption in rural areas and help reduce the country's dependence on the external demand.

"The past 30 years have witnessed ups and downs of the country's economy. After each reform, China would take a big step forward. With the government's flexible economic policies, the economy would develop into a more sustainable and solid one." he said.

(Xinhua News Agency October 26, 2008)

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