China Slows Down Its Economic Growth

Anxiety about the overlapping overcapitalization and overheating of business development has intensified, and China has decided to seek a way of balancing economic development while reducing the current pace of rapid growth.

Prime Minister of China Wen Jiabao revealed through a report at the second session of the tenth People’s National Congress (PNC) that, “The basics of this year’s economic policy are to prevent the market from taking a big fall or big rise. We will aim to reduce our economic growth rate from 9.1 percent of last year to approximately seven percent this year.”

Wen added that the Chinese government would lessen the issuance of government bonds on construction and also control credit limits in order to prevent inflation.

In particular, he pointed out, “We are strongly against reckless overlapping investments. We will not allow construction with improper conditions with regard to the protection of the environment, safety, energy, technical quality and so on. If an improper building is under construction, we will stop it. If it is already built, we will definitely remodel it into proper one.”

Overcapitalization is a serious problem in China as it has 100 car manufacturing companies and about 4,800 cement factories which total more than the rest of the world.

“We will try to reach a balance of international payments and at the same time maintaining the stability of the Chinese currency in a reasonable and evenhanded way.” Wen suggested that China has no plan to free its currency peg to the U.S. dollar.

He also said that the government would increase farmers’ income and agricultural output while abolishing the agricultural tax through the process of decreasing it one percent each year to narrow the gap between urban and suburb incomes. China will promote their balanced development plan by exploiting the west and the northeast of the country according to Wen.

Yoo-Seong Hwang yshwang@donga.com