Indications for China Policy, Market and Macro Economy in 2005

04/02/2005

Researchers from the State Council have presented their outlook for the policy, market and macro economy for 2005.

The latest report by the Development Research Center of the State Council has spotted out intrinsic dilemmas including the economic expansion "in a rough way", possible rebound of fixed asset investment which was reigned by administrative harness, the lack of mechanism to sustain the rise of grain production and farmers' income, the lingering systematic problems making the bottleneck of energy supply, the momentum pushing the housing prices up sharply, and the further reform on the financial system.

The report believes the country's economy will keep running fast at a apce of 8.5 percent. Increases will still be seen in investment, exports and consumption at 20 percent, 15 to 20 percent and 10 percent respectively. A 3 percent movement of consumer price index is moderate enough to pose no sweeping inflation threat. The tight supply of coal, oil, and power will be eased much while the situation for transportation will still be serious.

The report suggests that more economic and legal tools be employed to consolidate the achievements of the macro-control campaign and more attention be given to the agriculture. It insists that further reform and systematic arrangements are the only right solution to any problems threatening the health of the economy. It also called for more care to the underprivileged in urban areas and farmers who have to struggle in the pressure of rising prices.

Potential buyers in urban areas are more concerned about property and car prices. In 2004 housing prices were up fiercely especially in major cities like Shanghai due to the government's tough control over land and credit while the auto market went through a hard time.

The report assures consumers that the growth of housing prices will be tempered in 2005 after a surge last year although the brisk demand will continue to prop up the price inflation.

There are more idle houses available on the market which help to narrow the gap between supply and demand. However, developers will still push the real estate investment 20 percent plus higher although the policy of cooling down the redhot sector will remain valid such as strict control on demolition, difficult access to credit, and more implementation of land control policy. This, plus the effect of the interest rate hike last October, is expected to work.

An expert from the Development Research Center of the State Council thinks there is hope for a 14 percent comeback of passenger cars in 2005 if the compulsory third party insurance, fuel oil tax, as well as other policies offering better services for consumers, are carried out and infrastructure of cities is improved. He also expects buyers would be more ready to burn their pocket as stable car prices are quite likely in 2005. However, the report that the fuel oil tax will be levied within this year has been proved to be not true.