Positive changes have taken place in China's economy since early this year, especially in the second quarter, as the central government's stimulus package gradually begins to pay off. We have foreseen a clear and strong recovery. If the recovery can be sustained and strengthened, the world's third largest economy can grow at 8 percent or more for the full year.
It should be pointed out, however, that the economic upswing is not yet solid or balanced.
The recovery is unstable because investment in the real economy just began to pick up without full confidence; and the current increase in consumer spending, propped up by government policies, will be affected as the combined impact of unemployment and relative income decline looms large.
The recovery is not balanced as is evident from the slow recovery of the export-oriented industries in southeastern coastal areas in contrast to the fast growth in infrastructure construction and related industries. Large State-owned enterprises and major projects financed or supported by the government enjoy abundant capital. But the majority of small- and medium-sized enterprises have difficulty in getting bank loans.
The pattern of the recovery so far is not sustainable. Huge government fiscal investment cannot last long. The large amount of credit issued since the end of last year is an expedient measure and cannot be carried on.
We should make energetic efforts to maintain stability and sustain the economic upturn, with emphasis not only on "quick" recovery but also on "sound" growth. Therefore, the following three concerns should be carefully addressed.
The first is the relationship between investment growth and consumption increase. In recent months, although consumption kept growing with a good momentum, investment growth has played a leading role in the rebound process. From January to July, urban fixed-asset investments increased by 32.9 percent - a record high in recent years. We have realized the necessity for improving the consumption rate, which is a "slow variable" involving a series of structural and institutional changes.