British economy down by 0.2% in 3rd quarter

The British economy declined by 0.2percent in the third quarter, slightly better than the previously-estimated drop of 0.3 percent, the Office for National Statistics ONS said on Tuesday.

LONDON, Dec. 22 -- The British economy declined by 0.2percent in the third quarter, slightly better than the previously-estimated drop of 0.3 percent, the Office for National Statistics ONS said on Tuesday.

It was the third and final revision of the third quarter data --improving on earlier estimates that had put the contraction first at 0.4 percent, then 0.3 percent.

The latest revision left the year-on-year fall of British gross domestic product unchanged from the second estimate at 5.1 percent.

The report showed that UK output of the production industries fell by 0.9 percent in the July to September quarter, compared with a fall of 0.6 per cent in the previous quarter.

Construction output rose by 1.9 percent over the second quarter, revised up from a fall of 1.1 per cent reported in the previous estimate.

Output in the service industries fell by 0.2 percent in the third quarter, compared with a fall of 0.8 percent in the previous quarter.

The British economy declined by 0.2percent in the third quarter, slightly better than the previously-estimated drop of 0.3 percent, the Office for National Statistics ONS said on Tuesday.
(AFP)

Economic crisis to dominate opening of G8 summit

ROME: Leaders from the Group of Eight (G8) major industrial nations will warn against complacency over economic recovery when they begin an annual summit on Wednesday.

The three days of talks will aim to find common ground on a broad range of issues, from tackling global warming to boosting farm aid and from reviving international trade talks to dealing with Iran's nuclear ambitions.

Italian Prime Minister Silvio Berlusconi, beset by sex scandals, is the summit host and will kick off proceedings at a lunch that will discuss the economic outlook and regulations.

The summit takes place in the Italian city of L'Aquila which was wrecked by an earthquake earlier this year - a fitting backdrop for discussions on the crumpled global economy that is struggling to overcome the worst recession in living memory.

A general view shows the room where G8 leaders will hold their group meetings at the G8 summit near L'Aquila, Italy, July 7, 2009. Leaders from the Group of Eight major industrial nations and the main developing economies will hold talks from July 8-10 in the central Italian city of L'Aquila.

Policymakers would agree the world economy was still too weak to remove stimulus measures and would consider whether more work was needed to shore up banks, European officials said.

Speaking on the eve of the summit, British Prime Minister Gordon Brown told Reuters the world had to wake up to the scale of the downturn and stay focused on restarting growth.

"I am not complacent and remain vigilant about the financial state of the world," said Brown.

The United States, Japan and France are likely to echo his caution, leaving Europe's largest economy, Germany, isolated if, as expected, it seeks a commitment from the G8 to pull swiftly out of costly economic support policies when recovery comes.

G8 leaders badly underestimated the economic problems facing them when they met in Japan last year and Wednesday's talks will touch on what nations must do to prevent another such meltdown.

However, officials said few major initiatives were expected to emerge, with the broader G20 forum, grouping rich industrial nations and major emerging economies, tasked with formulating a regulatory response to the crisis rather than the G8 nations.

The G20 met in London in April and convenes again in September in the United States.

"In reality (L'Aquila) is just an intermediary step," said a senior French official.

US President Barack Obama makes his G8 debut in L'Aquila and more than 30 other world leaders will also take part in some of the discussions in recognition of the shifting balance of global economic power.

A Chinese delegation was set to attend the talks and defferences among countries still remain over cuts in greenhouse gas emissions and funding for low carbon technology.

The aim of talks is to agree a goal of limiting global warming to no more than 2 degrees Celsius (3.6 Fahrenheit) since pre-industrial times and strengthen last year's vague "vision" of halving global carbon emissions by 2050.

A packed first day is due to wrap up with talks on an array of international issues, including Iran's post-election violence and nuclear programme. However, these are unlikely to lead to any immediate action, such as a tightening of sanctions.

One area where officials said a breakthrough might be possible was trade. A draft communique suggested the G8 and "G5" developing nations would agree to conclude the stalled Doha round of trade talks in 2010.

Launched in 2001 to help poor nations prosper through trade, the talks have stumbled on proposed tariff and subsidy cuts.
(Agencies)

EU firms bullish on nation, says survey

Companies in Europe were confident about China's investment climate and would like to commit further resources to the Chinese market, a report released by a pan-European industry lobby yesterday said.

The European Chamber of Commerce, together with global consulting firm Roland Berger, conducted the Business Confidence Survey 2009.

Almost 98 percent of European companies in China have been negatively impacted by the global financial crisis, and larger ones have been more strongly affected than the smaller ones, the survey report revealed.

Still, China was a key business destination, and 71 percent of the interviewees said the impact has been much less than the downturn in their domestic markets. Nearly 56 percent said more than 5 percent share of their global revenue was generated in China in 2008, 5 percentage points higher than in 2007.

"China is a bright spot and is rising in importance in the global strategy of European companies," said Joerg Wuttke, president of the European Chamber of Commerce in China.

Around 46 percent of the respondents said they believed the crisis "will be over in China by the first half of 2010", faster than the other regions worldwide.

About 62 percent of the respondents said "the stimulus package has played an important role, but more is needed to drive the economy at a sustainable pace".

Yearender: Bumpy oil prices test world's nerves

BEIJING, Dec. 20 (Xinhua) -- The international energy market witnessed dramatic ups and downs in oil prices during the past year. As the world's most significant natural resource, oil used price fluctuations to test people's nerves.

PRICE PUSHERS

Beginning in the second half of 2007, the international oil market went wild, with prices surging at an unprecedented rate. Oil prices easily broke the 80 and 90 U.S. dollars per barrel (dpb) thresholds on the New York Mercantile Exchange (NYMEX), and on the first trading day of 2008, hit the historical 100 dpb ceiling.

Prices carried on their roller-coaster journey in the first half of 2008, climbing across 110, 120, and 140 dpb on the NYMEX. On July 11, oil hit an all-time high of 147.27 dollars.

However, after mid-2008, prices collapsed. They fell to around 100 dollars a barrel in September and dropped below 50 dollars in November, declining by more than two-thirds since their mid-July peak.

Oil traded at just above 40 dollars a barrel on Dec. 18 after sinking to its lowest level in more than four years, despite the Organization of the Petroleum Exporting Countries (OPEC's) announcement of a record production cut of 2.2 million barrels a day, about 7 percent of its output quota.

According to the 2008 World Energy Outlook, a variety of factors have contributed to price increases since 2003, including strong demand growth, no increase in OPEC member production between 2005 and 2007, rising costs for exploration and development, and a weaker U.S. dollar.

Analysts also believe that speculation was behind the recent spike in oil prices. Boston University economist Robert Kaufman said an increase in demand and a decline in production changed the delicate balance in the oil market, arousing speculators' anticipation that prices would soon rise.

That anticipation caused speculators to pour money into the oil market for big profits. The large amounts of money pushed oil prices to record levels.

However, prices collapsed as the dollar appreciated against major currencies and the global economic crisis ravaged demand for energy. Market pessimism for weaker demand has seen the withdrawal of speculative funds from the oil market. Institutional investors have withdrawn billions of dollars from the oil market as prices collapsed and look unlikely to return until the recession hits bottom -- probably well into next year.

The exodus of funds probably helped hasten the collapse in oil prices, which have fallen by almost two thirds in just over four months.

LAUGHERS AND WEEPERS

The rise and fall of oil prices give different parties different feelings. The rapid increase in prices during the first half of the year imposed huge pressures on the world economy. The high prices weakened consumers' purchasing power, increased inflation, and worsened the trade deficits of oil-importing nations. Some experts think the price surge also helped exacerbate the international financial crisis in the latter half of the year.

　For most people, maybe the only good news from the financial crisis was the slump in oil prices. The drop relieved spending pressures on nations, companies and consumers and gave central banks more room for interest-rate cuts in a bid to stimulate the economy without having to worry about inflation.

"In the very short term, because we are in a recession, we could all use a low oil price," said Mike Wittner, global head of oil research at French Bank Societe Generale. "It is like a tax break, putting money back into pockets for a short time."

However, OPEC, the world's largest oil-producing bloc, looks at the price ups and downs with mixed feelings.

To maintain a relatively high price accepted by both producing and consuming nations best suits OPEC's interests. Expensive oil weakens consumers' buying ability and increases importing nations' trade deficit, thus dampening consumption. That in turn leads to weaker demand and a drop in prices.

Low prices, on the other hand, squeeze investment in the oil industry, reducing future supplies. They discourage energy saving and destabilize countries dependent on oil exports, likely making oil in the future more expensive and even more volatile.

Turbulent oil prices also rattle the world political arena. An increase in prices not only promotes oil exporting nations' economic power, but also to some extent their political strength. A price drop, meanwhile, weakens their voice on the international stage.

WHERE WOULD PRICE GO?

People's eyes are fixed on the future development of world oil prices as they directly affect everyday lives and the financial fortunes of nations. Amidst the deepening impact of the international financial crisis, various financial institutions have lowered predictions for oil prices next year. Merrill Lynch, for one, has reduced its forecast from 90 dollars to 50 dollars dpb, without excluding the possibility of 25 dollars.

OPEC, meanwhile, thinks that in addition to the traditional demand-production factor, many other causes help stir oil prices, making them volatile and unpredictable. The world's largest oil producer targets a stable price of between 70 to 90 dollars per barrel, calling it a "fair price."

Simon Wardell, director of the energy markets group at Global Insight Ltd in London, sees broad agreement between OPEC and consuming countries that around 75 dollars is about right for oil.

"That price gets you investment in new production, is high enough to encourage more efficient use of oil and is enough to maintain the budgets of the Middle Eastern countries," he said.

Analysts warn that extremely low prices now will encourage buying and discourage production, causing a possible price rebound in the near future.

The Paris Bank predicted that in the next few quarters, weak demand will still prevail in the market and dampen prices, but the limited output increase of non-OPEC countries and the reduction of OPEC production will push up prices later in 2009.

According to the World Energy Outlook 2008, the current "cheap oil era" is approaching its end as long-term demand for oil remains robust. The report predicts that in the next two years, international prices will remain volatile, but will surge sometime during the period, especially after the financial crisis ends.

The outlook predicts that in nominal terms, world oil prices will go up and down to about 70 dollars per barrel in 2015, then rise steadily to 113 dollars in 2030, about 70 dollars per barrel in inflation-adjusted 2006 dollars.

Commentary: Financial crisis won't stop China's opening up, reform

China holds a conference to mark the 30th anniversary of the convening of the Third Plenary Session of the 11th Central Committee of the Communist Party of China, at the Great Hall of the People in Beijing, capital of China, Dec. 18, 2008.


BEIJING, Dec. 18 (Xinhua) -- After 10 years of discussion and planning, China will launch fuel tax reforms in the New Year, part of an effort to streamline its price systems.

It will be just the latest market-oriented major policy move that China has undertaken in its three decades of reform and opening up.

Thursday was the 30th anniversary of that drive, and during those three decades gross domestic product (GDP) grew by more than9 percent on average annually, a rare feat in global economic history.

But the celebration of these achievements was overshadowed by the world financial crisis, which is deepening and spreading globally, devastating financial systems in developed countries and darkening world economic prospects.

Many economists and commentators have expressed worries that China might overreact to the crisis and veer away from reform and opening up. For example, this point of view was expressed by Fred Hu of Goldman Sachs, who wrote in the Wall Street Journal Asia of the "danger" that "Beijing is extracting the wrong lesson from recent events at home and abroad."

Judging from China's recent macroeconomic moves, especially speeches by its top leaders, it is unlikely that China will change course.

At a ceremony on Thursday marking the 30 years of reforms, President Hu Jintao attributed all the country's achievements in economic and social development to the policies, which he vowed to continue.

"The experience of the past three decades tells us," Hu said, that "the decision to adopt reform and opening-up has been in agreement with the people's thoughts, compatible with modern tides, and completely right."

The just concluded Central Economic Work Conference stressed that China must stick to the basic principles of building a socialist market economy and opening up to the outside world.

China deeds match its words. In November, when the economy felt the chill of the financial crisis, the State Council decided to invest 4 trillion yuan (about 588 billion U.S. dollars) by 2010 to stimulate domestic demand and maintain GDP growth at 8 percent.

China's economy heavily depends on exports, and so far the most serious impact of the crisis on China is shrinking external demand. The government has recognized the danger of over-reliance on exports and has been making efforts to transform the structure of economic growth.

Seen in this light, the crisis is more of an opportunity than a risk. The freshly promulgated policies indicate that the government is paying serious attention to stimulating domestic consumption, especially in rural areas. This move can also narrow the gap between rural and urban areas and income groups.

There is no sign that China will let up on reform. For example, the fuel tax reform, which is to be implemented on Jan. 1, is actually a bold attack on the last two price strongholds that are still under the strict control of the government: fuel and electricity.

This reform also has an impact beyond prices. Since it will cost people more to use energy, the tax change could cut energy use and emissions.

Other major reforms are also being prepared, including those involving derivatives and futures, the social security system and rural medical care.

On the opening side, China has not slowed down, either. So far this year, it has approved 20 qualified foreign institutional investors to enter the market. Also this year, several foreign banks opened branches in China, while China's major commercial banks opened overseas branches.

Chinese companies' overseas purchases and acquisitions are continuing as well, with the latest being Sinopec's 1.5 billion-U.S.-dollar acquisition of Canadian oil company Tanganyikain December.

With its economy increasingly integrated into the world, China has paid careful attention to international cooperation. Over the past two months, President Hu Jintao and Premier Wen Jiabao held talks with leaders of the world's major economies seeking ways to pull the global financial system and the economy out of crisis.

The financial crisis is only one of the unexpected challenges that China has faced this year. Others included the prolonged snowstorms in January, an outbreak of hand-foot-mouth disease over the summer, the deadly Sichuan Province earthquake in May and the melamine scandal that almost destroyed the dairy industry.

China has displayed exceptional resilience in responding to these challenges and the government's response has been increasingly efficient and transparent, winning recognition from all over the world.

The year that's just ending was a critical one for the opening up and reform process, and the country weathered the difficulties with great confidence. The Central Economic Work Conference expressed confidence in adherence to the socialist road with Chinese characteristics and the achievements of the opening up and reform drive.

China is learning from the financial crisis, and government officials and scholars have discussed in the media how and why the crisis happened.

While China will use regulation to prevent market turbulence, it will not stop market-oriented reforms and opening up to the world.
Xinhua

Conference a milestone in strategic transition

BEIJING, Dec. 12 -- This year's Central Economic Work Conference is a milestone in the history of China's economic development. The annual conference, which is aimed at mapping out plans for next year's economic development, was convened this time in the midst of a global financial crisis and also when China marks the 30th anniversary of its adoption of the reform and opening-up policy in 1978.

The significance of the three-day gathering, concluded on Wednesday, thus goes beyond the economic domain.

It was agreed at the conference the country should increase the contribution of domestic market to the economy and gradually reduce its dependence on foreign trade, the first time that such a stance was put forward by the central authorities.

At the meeting, addressed by President Hu Jintao and Premier Wen Jiabao, the top leadership also vowed to boost domestic consumption and to gradually increase the proportion of labor income in the country's gross domestic product to optimize the interests distribution between capital and labor.

All these inspiring announcements demonstrate policymakers' acute insight into the changing economic situations at home and abroad as well as their courage and determination to change the previous investment- and export-centered development strategy.

However, an effective implementation of these far-sighted guidelines depends on whether or not governments at various levels have a sober perception about the rapidly changed domestic and international political and economic environments.

Since its adoption of the reform and opening-up initiative in the late 1970s, the Chinese government and people have never missed any major opportunities to boost self-development. In the context of the ever-expanding global market and commercial opportunities it produces, our manufacturers have rapidly forged a worldwide manufacturing industry that has produced more than 60 percent of the world's articles of daily use.

We have succeeded in capitalizing on the rare period of peace in the world and an ever-deepening globalization to accelerate the development of our infrastructure network and some primary industries. China has reached the world's No 1 position in many sectors, such as steel and cement manufacturing, rising from the serious insufficiency of an earlier period.

It is the country's successful utilization of the rare strategic opportunity that has laid down a solid foundation for its elevation to the status of a world economic power.

This year, the country and its people have experienced both great jubilation and deep distress, ranging from the inspiring Beijing Olympics to the catastrophic earthquake in Sichuan province. The country also could not keep away from the ongoing global financial tsunami, which has already plunged the world's economy into a recession and has seriously damaged its external economic environment. The contracting external demand has led to the decline of this export-driven economy.

Also, the decades-long strategic opportunity our late leader Deng Xiaoping once urged our country to grapple is almost gone and the emerging economy is now in a new period of transition.

Under these circumstances, we should try to reduce our excessive dependence on foreign trade to bolster our economic development and take immediate and workable measures to base economic growth upon the prosperity of domestic market. Only thus can the country reduce the impacts of the global economic fluctuation on its economic development.

A sustained economic growth should rely on a booming domestic market and improved consumption ability among its large number of people. Only a consumption-driven economy can enjoy an enduring force for a long-term and healthy development.

The efforts and measures to expand employment and narrow the urban-rural gap promised by the top authorities at the Central Economic Work Conference will contribute much to the country's advancement toward these goals. For their realization at an earlier date, China should most importantly try to expand the share of labor income in the whole GDP aggregate to push for a smooth economic transition.

In the ensuing years after the country carried out the reform and opening-up policy, the income of farmers gained a substantive boost, thanks to the increase in the purchase prices of some agricultural and sideline products and the adoption of the more productive household contract system.

Urban residents' income also greatly improved due to the implementation of the bonus system and other stimulus measures. However, the proportion of labor income has gradually declined in the whole GDP value with the adoption of the multiple income distribution systems. Statistics show that labor income only accounted for 36.2 percent of the country's GDP in 2005, 19.8 percentage points lower than that in 1983. The low labor value /GDP ratio was only one third of that in developed countries and even lower.

This has not only directly resulted in an unbalanced contribution of consumption and investment to the GDP growth, but has also further widened the income gap between different social groups. Facts prove that the ever-rising per capita GDP has essentially not brought due benefits to many ordinary people. This phenomenon will easily induce people to doubt the real purpose of the country's unremitting efforts to pursue economic growth. This, if not reversed, will affect social stability in the long run.

A reasonable and scientific governance philosophy should be fully embodied in a reasonable and national wealth distribution system. The just-concluded Central Economic Work Conference signals a crucial step the central government has taken toward this goal.

　　The author is a researcher with China Foundation for International and Strategic Studies

Source: China Daily

Strong foundation to help China sustain growth

BEIJING, Dec. 11 -- China has managed to overcome the adverse impact of several destructive natural calamities and the international financial crisis this year and maintain a steady economic growth.

Available statistics on the pace of China's economic growth, price tendency, employment and international payment conditions - the universally used tools to measure an economy's performance - indicate China's economy is still in a good shape despite it facing an unprecedented severity at home and abroad.

The country achieved a 9.9 percent economic growth rate in this year's first three quarters, slightly higher than the average growth rate of the country's gross domestic product since the reform and opening-up policy was adopted in 1978. The rate is also in sharp contrast with the sluggish global economy, especially those of the U.S., the European Union and Japan, the world's main economies that have already gone into recession.

Compared with the 7 percent growth rate achieved in the same period by the other three members of the BRIC, an abbreviation for the group that also includes emerging economies Brazil, Russia and India, China's 9.9 percent is not a mean figure.

The world's largest developing country has also made remarkable achievements in controlling inflation. Its consumer price index (CPI) stood at 6.7 percent year on year during the preceding 10 months, with a decline in six consecutive months since May. In particular, its 4.9 percent, 4.6 percent and 4.0 percent CPI growth rates in August, September and October respectively suggest that the ticklish issue of inflation has been kept under control.

In solving the issue of employment for its enormous population, China has also made great progresses. Due to relentless efforts by governments at all levels, 10.2 million new jobs were created throughout the country's cities and townships during the first 10 months, fulfilling the goal set for the whole of this year. But the impacts of the ongoing global economic crisis continue to aggravate in the country's southeastern coastal regions, which abound in export-oriented enterprises. This will see the number of jobless workers increase.

However, local governments have taken a series of measures , such as extending subsidies to those who are laid off, offering them training courses and striving to create new jobs. These are expected to reduce the side effects of the crisis to a minimum.

As to the international payment conditions, China has also done very well. The value of its exports in the first 10 months surpassed $1.2 trillion, or a 21.9 percent growth rate year on year, although the country also suffered an obvious economic slowdown due to the world financial crisis. Its forex reserve had reached $1.9 trillion by the end of September, making it the largest one in the world.

However, a sound performance should not blind us to some pessimistic facets of the country's economy. Recently, the IMF lowered its forecast for this year and next year's global economic growth to 3.7 percent and 2.2 percent respectively. The world's crisis has also brought some negative effects on China's real economy. All these need greater efforts and enhanced confidence on our part to deal with possible hardships ahead.

The solid economic foundation the country has built over the past 30 years and the enormous potential of its domestic market have strengthened our confidence to succeed in the fight against the global crisis. Since the reform and opening-up initiative was adopted, the material strength we have accumulated will serve as a strong prop for the country's long-term economic and social development.

A well-developed network of railway, road, aviation, water and oil transportation has been in place throughout the country

Also, the flexibility and sharp perception embodied in the central government's macroeconomic decision-making have also beefed up our capability to tackle complicated situations of various kinds.

In a report delivered to the 17th National Congress of the Communist Party of China (CPC) Central Committee, President Hu Jintao announced the country would unswervingly cling to the reform and opening-up policy. To boost the development of the vast rural areas, the central government mapped out development directions for the underdeveloped regions in the Third Plenum of the 17th CPC Central Committee. The implementation of the long-anticipated systems on property protection, administrative management and social security as well as the pending reforms on value-added tax, oil pricing and medical care, is also expected to inject new vitality into the economy.

After 30 years of opening-up, market awareness and a sense of crisis have gradually taken hold of domestic enterprises. To struggle against the emerging economic slowdown, some export-centered enterprises in coastal areas have begun to press ahead with arduous industrial adjustment and upgrading. This will stimulate their counterparts in other regions to follow suit so that they are not deserted by the changing economic situations. All these will provide an endless energy into development of the whole economy.

China's relatively weak infrastructure network and its enormous population will offer a great advantage for the country to deal with the global economic crisis. Its ongoing process of industrialization and urbanization and the huge numbers of its consumers mean the country still has a wide room to expand its domestic demand.

We have good reasons to believe that the proactive fiscal and the moderately loose monetary policies adopted by the central government, along with the colossal stimulus package, will help spur domestic demand, push industrial upgrading and contribute much to the country's pursuit of a steady economic growth.

The author is director of the National Bureau of Statistics. This is an edited version of his article which appeared in the latest issue of Qiushi magazine.

Source: China Daily

World Bank: Recession in developed countries, sharp slowdown in developing countries inevitable

WASHINGTON, Dec. 9 (Xinhua) -- The world financial crisis has dimmed short-term prospects for the whole world and recession in developed countries and sharp slowdown in developing countries inevitable, according to a report released by the World Bank on Tuesday.

The volume of world trade is likely to contract for the first time since 1982 due to the crisis, while the sharp slowdown has caused commodity prices to plummet, ending a historic five-year boom, said the Global Economic Prospects (GEP) 2009.

DEVELOPING WORLD TO FACE TWO MAJOR EXTERNAL SHOCKS

The report finds the global economy transitioning from a long period of strong developing-country led growth to one of great uncertainty as the financial crisis in developed countries has shaken markets worldwide.

It projects that world GDP growth will be 2.5 percent in 2008 and 0.9 percent for 2009. Developing countries will likely grow by4.5 percent next year, down from 7.9 percent in 2007, while growth in high-income countries will turn negative.

"People in the developing world have had to deal with two major external shocks -- the upward spiral in food and fuel prices followed by the financial crisis, which has eased tensions in commodity markets but is testing banking systems and threatening job losses around the world," said Justin Lin, World Bank chief economist and senior vice president.

"Urgent steps are needed to help reduce fallout from the crisis on the real economy and on the poorest, including through projects that build better roads, railways, schools, and health care systems," he said.

In light of the crisis, the World Bank is increasing its support for developing countries, including through new IBRD commitments of up to 100 billion dollars over the next three years as well as via its private sector arm, the IFC, in the form of facilities for trade finance, banking recapitalization, and for privately-funded infrastructure projects facing financial distress.

With world trade volumes projected to contract 2.1 percent in 2009, developing countries will see a big drop in their exports. Tighter credit conditions and increased uncertainty are expected to see investment growth in both developing and high-income countries slow in 2009 -- actually falling 1.3 percent in developed countries and rising by only 3.5 percent in developing countries versus 13 percent in 2007.

"The immediate threat to recovery is further failure of major financial institutions," warned Hans Timmer, Lead Economist and Manager in the World Bank's Global Trends unit.

"Policymakers in developing countries should monitor their banking sectors carefully and be prepared to enlist external support to shore up currencies and banking systems." said Uri Dadush, Director of the World Bank's Development Prospects Group.

"Given the expected decline in global trade, both developed and developing countries need to resist the temptation to resort to protectionism, which would only prolong and deepen the crisis," he noted.

OIL PRICES EXPECTED TO AVERAGE 75 Dollars A BARREL NEXT YEAR

The collapse in global growth has reversed the surge in commodity prices that characterized the first half of the year, with prices of virtually all commodities falling sharply since July, said the report.

While real food and fuel prices in developing countries have dropped considerably, they remain high relative to the 1990s and the social turmoil and human crises they triggered are still reverberating.

Overall, higher food and fuel prices have cost consumers in developing countries about 680 billion dollars in extra spending in 2008 and pushed an additional 130-155 million people into poverty.

According to the GEP, next year oil prices are expected to average about 75 dollars a barrel and food prices worldwide are expected to decline by 23 percent compared with their average in 2008.

Looking forward to the longer term and despite concerns that recent price spikes might signal future supply shortages, the report finds that supply should more than meet demand over the next 20 years.

"Over the longer term, the supply shortages that contributed to the sharp rise in commodity prices are expected to ease," said Andrew Burns, Lead Author of the report.

"Demand for energy, metals, and food should slow due to weaker population growth and an expected reversal in China's high demand for metals as investment rates there decline," he said.

However, policies will need to support investment in additional supply capacity and encourage greater conservation and efficiency measures to keep commodity supply and demand in balance, said the World Bank.

Although ample food supply is projected globally, food production in countries with fast growing populations, notably in Africa, may not keep pace with demand, warned the World Bank.

To avoid becoming overly dependent on imported food these countries need programs to boost agricultural productivity, such as those that expand rural roads, increase agricultural research and development, and intensify outreach efforts, said the GEP.

COMMODITY EXPORTS CAN PROMOTE GROWTH IF RIGHT POLICIES IN PLACE

The heightened sensitivity of food prices to oil prices that resulted from increased biofuel production from food crops is likely to persist, unless new technologies -- including the development of non-food sources for biofuel production and other energy alternatives -- make food-crop based biofuels uneconomic, according to the World Bank's report.

A key finding from the GEP is that commodity exports can promote growth if the right policies are in place.

The authors find that resource-rich countries have managed the windfall revenues of the recent boom more prudently than in the past, which should allow them to better withstand the decline in prices.

However, countries with new-found resources and those heavily reliant on bank-lending may be at risk.

This is because with lower commodity prices, the profits of many companies are down, while at the same time interest rates are higher -- exposing them to sharply higher costs when loans come due, said the report.

Most consuming countries responded to higher food and fuel prices by expanding existing social safety networks to stave off malnutrition and its long term consequences.

Governments spent as much as 2 percent of GDP ramping up programs, although because of poor targeting, as little as 20 percent of the additional spending reached the poorest, said the GEP.

Thus, the report recommends several measures that could reduce the chance of another food price crisis. These include discouraging export bans, providing more stable funding for food-aid agencies, and improving the coordination and information about global food stocks.

Obama can gain much from friendly China ties

BEIJING, Dec. 9 -- Many Chinese people have shown an increasing interest in the possible course of Sino-U.S. relations during the new U.S. administration under Barack Obama. There have been concerns over whether the incoming administration will follow the model of its predecessors in developing ties with China.

In the past, it was common for a new U.S. president to go for a confrontation with China early in his tenure and then pursue reconciliation and cooperation as the time went by.

To create favorable domestic opinion, some newly elected U.S. leaders have singled out China for verbal attacks. It was labeled either as Washington's strategic competitor or as a threat.

Bill Clinton and George W. Bush both chose to take a confrontationist attitude toward China during their early presidency. But bilateral ties gradually returned to normal. Some Washington officials in the two administrations even boasted of enjoying the best-ever relationship with Beijing.

Its fast growth and the world's acceptance of China as a rising economic power have made many Americans feel that it would soon catch up with or even surpass the United States. They have thus tried to point fingers at China over a series of issues. For example, China has been accused of beefing up its military muscle to threaten the security of the U.S. and its allies.

All these accusations essentially stem from their fears that a rising China would pose a serious challenge to U.S. hegemony, a goal that has been long pursued and maintained by some U.S. strategists and politicians since the end of the Cold War.

However, in the current situation, there is no reason for Obama's new administration to take a confrontationist attitude toward China after he is sworn in on Jan 20.

With 585 billion U.S. dollars of U.S. government bonds, China is now Washington's largest creditor. China's cooperation is very important for the world's largest economy to emerge out of its deepest economic crisis in decades.

Washington also needs Beijing's help in the handling of some major regional issues. Under China's brokering, Korean Peninsula denuclearization issue has made remarkable headway. The new U.S. administration will have a mountain of thorny issues to resolve.

They range from restoring peace in Iraq and Afghanistan and pushing for resolution of the Iran nuclear issue to defusing tensions between Washington and Moscow on the issue of Georgia and Ukraine. All these make it unlikely that the new administration would go into a new confrontation with China.

However, we should not underestimate the possibility that China is accused of not making due contribution to the global efforts to rescue the world's economy. That may fuel a new Sino-U.S. confrontation during Obama's presidency.

The world economic crisis is also making China suffer a serious economic hardship. Its top priority is how to curb a sliding economy and recover market confidence. The enormous stimulus package announced by the Chinese government is mainly aimed at boosting domestic need to spur economic growth and may not be directly beneficial to the U.S. economy.

The U.S. should not expect China to continue to buy its new treasury bonds on a large scale given that the country already holds more than $585 billion worth of these bonds. That China chooses to hold the enormous amount of U.S. treasury bonds but not to sell them is the largest contribution to the U.S. economy under the current circumstances.

The long-standing trade imbalance between the two countries also proves to be an uphill task to be resolved. Despite facing a severe outside trade environment, China's export volumes are still on the rise despite a fall in the growth rate because prices of imported commodities have declined. Cheap but top-notch made-in-China goods will benefit common consumers in developed countries in these critical times.

Obama's remarks during his presidential campaign indicate his doubtful attitude toward the U.S. trade policy on China. Like some conservatives, the president-elect blamed China's currency policy as the largest factor for its trade surplus with the U.S.. Despite the yuan's appreciation against the dollar by a large margin in recent years, disappointed U.S. opinions may continue to pressurize Obama's new government to demand yuan's further revaluation.

It is known that the galloping trade imbalance between the two countries is attributed to Washington's long-standing restrictions on its high-tech exports to China. Lifting of such restrictions would greatly help ease its trade deficit.

In laying out its foreign policy toward China, Obama's administration should not ignore the fact that the two countries are enjoying an ever-deepening interdependence.

The author is a researcher with the Development Research Center of the State Council

Source: China Daily

USCBC: Fifth SED with China leaves solid platform for Obama administration

·Part of Paulson's legacy "will be the creation of a high-level dialogue," said USCBC President Frisbie.
·The past few months have reminded us that our economies are greatly interdependent, he said.
·Success for each of us in the years ahead will require more engagement and cooperation, he said

WASHINGTON, Dec. 5 (Xinhua) -- The fifth U.S.-China Strategic Economic Dialogue (SED) leaves a solid platform for the Obama administration to build upon in its economic and commercial engagement with China, U.S.-China Business Council (USCBC) President John Frisbie said Friday.

Part of Treasury Secretary Henry Paulson's legacy "will be the creation of a high-level, forward-looking dialogue between the United States and what will soon be the world's second-largest economy, China," said Frisbie in a statement.

"The past few months have reminded us that our economies are greatly interdependent, and success for each of us in the years ahead will require more engagement and cooperation, not less," he noted.

"This was the fifth high-level meeting, and the lesson we can draw is that progress comes through a patient process of building one success upon another," said Frisbie. "Through this approach, the future holds great hope of continued advancement on issues important to U.S. interests."

China and the United States started their two-day fifth SED in Beijing Thursday. The two sides made many agreements on energy and environmental topics, global economic and financial cooperation, consumer safety, bilateral investment issues, and other areas.

Initiated by the two presidents in 2006, the twice-yearly SED is the highest-level among the existing China-U.S. dialogue and consultation mechanisms.

China is the third-largest export market for U.S. products and services, and U.S. exports to China are growing far faster than U.S. exports to other major trading partners. U.S. exports to China were up 17 percent through September of this year.

"China remains a source of growth for our manufacturers at a time when we face economic challenges on many other fronts," said Frisbie.

"We need to continue to develop these opportunities for our companies and workers, while at the same time we engage with China to remove trade barriers and integrate Beijing into the rules-based international economy," he noted. "The SED can help do just that, and the U.S.-China Business Council encourages the Obama administration to build upon its success."

The USCBC is the leading organization of U.S. companies engaged in business with China. Founded in 1973, the USCBC provides extensive China-focused information, advisory, and advocacy services, along with events, to roughly 250 U.S. corporations operating within the United States and throughout Asia.

Financial tsunami teaches us not to put all our eggs in one basket

HONG KONG, Dec. 5 (Xinhua) -- "The Financial tsunami teaches us not to put all our eggs in one basket," Hong Kong Trade Development Council (TDC) Executive Director Fred Lam said in a recent exclusive interview with Xinhua.

Lam said the financial tsunami exposed the over-reliance of the Hong Kong economy on exports to the United States, the European Union and Japan, which accounted for 60 percent of Hong Kong's consumer product export to other economies.

Lam said the TDC estimate that the crisis could last 18 to 24 months, and that the two quarters of 2009 would be the toughest time for international trade.

"We will not see positive signs take helm until the end of first half," he said.

Lam said the impact of the current crisis on Hong Kong exports was much larger than the Asian financial storm in 1998 and the SARS outbreak in 2003, with the impact of the former largely confined to Asia and the latter having limited impact on Hong Kong's export, which was still growing in 2003.

　　DOWNWARD ADJUSTMENT OF EXPORT GROWTH FORECASTS

Lam said the TDC has recently adjusted the Hong Kong 2008 export growth forecast downward to 5.5 percent from 7-7.5 percent, which was put forward in spring.

TDC statistics show Hong Kong's exports to the United States began to decline around August and September, coupled with an equally negative performance in export to Japan in recent months and modest growth in exports to the European Union.

Positive growth in export growth in October, at 9 percent, was better than expected but does not represent the whole picture of Hong Kong trade because quite a chunk of its exports to the mainland, Hong Kong's largest trading partner, was components and parts for export manufacturing. In 2009 export decrease was possible, he said.

"We have yet to give a qualitative projection for 2009, but we are prepared for bad numbers," he said.

If so, it will be the first export decrease for Hong Kong since the burst of the IT bubble in 2000, when the international trade hub recorded a decrease of 5.8 percent in export.

Lam said confidence had been a key factor in the current crisis, including a lack of confidence in each other between buyers and sellers, between firms and the financial institutions, as well as a lack of confidence of consumers in their employment prospect.

"It takes a short time for confidence to tumble, but long to recover," he said.

Lam said the TDC will have to look to sales statistics in the United States in the two to three weeks before Christmas for clues for Hong Kong exports next year, adding that there has been a modest growth in the first several days of the Thanksgiving holiday.

Some small and medium enterprises operating in Hong Kong the mainland were dropping out under the impact of the tsunami, Lam said, adding that he was nevertheless confident of the prospect after the coming one or two years.

OVER-RELIANCE ON U.S. CONSUMPTION, NEED TO DIVERSIFY

Lam said the ongoing crisis exposed Hong Kong's over-reliance on exports to developed economies such as the United States, the EU and Japan.

The Trade Development Council, a promotion arm of the Hong Kong Special Administrative Region (HKSAR) government, has been encouraging Hong Kong businesses to explore the emerging markets since three years ago, he said.

Russia, the Middle East, South America, India, among others, do have the demand as well as rising consuming capacity to make a sound export market, but Hong Kong businesses have been used to easy money on bills from the developed economies.

"You can do well if you try. We started in the Middle East a couple of years ago and have been doing well ever since. Now we are expanding into Iran," he said.

The TDC has recently earmarked 120 million HK dollars (15.38 million U.S. dollars) to help attract more buyers to Hong Kong and subsidize local firms on trade fair fees.

"We are trying to bring buyers here. It is what we can do best," Lam said.

Lam said the TDC was working on a major expansion project on the Convention and Exhibition Center, which hosts part of Hong Kong's exhibitions organized by the Trade Development Council, which totaled 25,000 exhibitors a year. 　

MAINLAND MARKET

"What we look to the most for potentials is the mainland market," Lam said in fluent mandarin Chinese, or putonghua.

The mainland currently accounted for only about 8 percent of Hong Kong's consumer product exports, which, from another perspective, means great potential, Lam said.

He said Hong Kong is well-positioned to benefit from a combination of overseas advantages and the market potentials of the Chinese mainland, as the city has comparative advantages such as good designs, management, and manufacturing.

Specifically, Lam said Hong Kong may use the mainland market to grow indigenous international brands, which the city lacks in spite of its international trade hub status.

The TDC planned to open a store of its Hong Kong Design Gallery in Beijing in 2009, Lam said, referring to a gallery showcasing local designs and brands located at the Hong Kong Convention and Exhibition Center in the city's downtown area.

The TDC was also planning fashion shopping fairs in the mainland second-tier cities of Chongqing and Wuhan, in southwestern and central China, respectively.

Services trade with the mainland is also of great potential, with the CEPA, or the Closer Economic Partnership Arrangement, which reduces trade barriers.

Lam said he was thinking of trade fairs to bring together buyers from the mainland and sellers of products like wine and tea from the rest of the world.

Lam recounted the inspiring experience of visiting young men in Henan province in central China, who established the food brand Sinian within a couple of years.

"I was thinking, if it was us, we would have managed it even better," he said, "that is where our comparative advantage lies."

Holding high hopes for Sino-U.S. joint solutions

BEIJING, Dec. 3 -- The Sino-US Strategic Economic Dialogue (SED) will start its fifth two-day session tomorrow in Beijing, with all eyes on how the two major economies will face the global financial crisis together even as Washington prepares for a handover of power to the Obama administration next month.

Initiated by President Hu Jintao and his US counterpart George W. Bush in 2006, the semiannual dialogue has become a major channel for policymakers in the two countries to maintain frequent contact and enhance mutual trust.


The two sides have reached consensus on nearly 150 areas during previous SED sessions, covering issues such as macroeconomic policy, environmental protection and energy efficiency, Assistant Minister of Finance Zhu Guangyao said last week during a news briefing.

Analysts and businesspeople are holding high expectations of the coming dialogue, but the impressive achievements of previous sessions have not fully satisfied critics in the US who say the process has failed to resolve the most important issue on the table: getting China to appreciate the yuan.

"The incoming Obama administration may want to put concerns over the yuan exchange rate high on the agenda to calm some critics in its party if he decides to continue the dialogue," Sun Zhe, director of the Center for Sino-US Relations at Tsinghua University, told Caijing magazine earlier last month.


"This is an issue that China and US will face off sooner or later, putting it on the agenda may even make it easier for the two sides to conduct the dialogue," Sun said.

With the inauguration of the Obama administration a month away, observers say how the Republican Bush-initiated SED mechanism will fare under the new Democrat-Obama leadership - a mechanism now seen by many as a barometer of Sino-US relations - will be under increasing scrutiny.

The shared interests and increasingly important bilateral trade and economic relations between China and the US mean that dialogues like the SED should be continued, analysts said.

The ongoing global financial crisis has made such a platform even more important as the cooperation between the two countries - the US being the world's largest developed economy and China its largest developing one - are critical to counter the economic slowdown, they said.

"It is in the fundamental interests of the two countries to continue the dialogue, regardless of who the US president is," said Shen Dingli, director of the Center for American Studies at the Shanghai-based Fudan University.

The US needs China's cooperation to tackle the current financial crisis as the latter holds a large amount of foreign exchange reserves, Shen said.

"Our recent close and frequent communication and cooperation, as we address the challenges in the financial markets, are tangible examples of the power and utility of a Strategic Economic Dialogue based on mutual trust," US Treasury Secretary Henry Paulson, who will head the US delegation to the 5th SED, said last month.

"This framework provides the next administration a critically important platform for US economic engagement with China," Paulson said.

Paulson is expected to elaborate his views on the dialogue mechanism in a press conference this morning in Washington.

"I hope Henry Paulson can convince Obama to continue the SED, that is very important," said James McGregor, chairman and CEO of JL McGregor & Company, a China-focused, China-based independent research firm.

"The world is depending on China's growth," the former CEO of Dow Jones & Company in China said.

"Obama's chief China advisor is an experienced China hand, he understands that," McGregor said, referring to Jeffrey Bader.

While researchers agree the Obama administration will continue the SED framework, they say it is likely the name, contents or focus of the dialogue may be modified.

"We (The American Chamber of Commerce in China) anticipate that the United States and China will continue to hold high-level discussions concerning economic issues of importance to the two economies. It is therefore likely that a dialogue of some sort will continue, although it may be characterized or titled somewhat differently," said James Zimmerman, chairman of the American Chamber of Commerce in China.

"A key element (of the SED) is that it allows for a high-level engagement on issues of importance to both the US and China. Nothing can be achieved without dialogue and the sharing of dialogue and points of view," Zimmerman said.

China will discuss possible changes to the dialogue's name and contents with the Obama administration, Assistant Minister of Finance Zhu said last week during a news briefing.

The 5th SED is also expected to discuss other issues of macroeconomic policy, the international financial crisis, energy, environment, trade and investment.

"We strongly believe that this mechanism (SED) should and will carry on (under the new US administration)," Zhu said.

Fudan University's Shen said the Obama government will also "very likely" elevate the strategic dialogue from the current vice-premier to premier level.

The possible elevation of the dialogue level, Shen said, is of great significance, as it will make the decision-making process swifter, hence raising its efficiency.

"Obama was elected because American people think he is a man of far-sightedness and will make decisions that are in their interests," Shen said.

"I personally know many of Obama's China advisors and I believe they will do it," he said.

The name of the SED may also be changed as every politician is inclined to credit himself with some legacy, Shen said.

Similarly, some say the topics and even dialogue itself should be conducted in an "evolving manner" to stay abreast of the rapidly growing Sino-US ties.

"Given that the relationship between the US and China is constantly growing and evolving, the dialogue and its topics should be managed in a manner that addresses the key challenges and issues affecting the US-China relationship including, but not limited to, environmental and energy cooperation, market access, transparency, and economic recovery and growth," Zimmerman said.

(Source: China Daily)

UN urges commitment to climate change despite financial woes

BEIJING, Dec. 2 --The opening of the United Nations' annual conference on climate change yesterday at Poznan in Poland is a timely reminder that the unfolding financial crisis should in no way weaken the world's commitment to fighting climate change.

The discussions at this conference will be of particular importance to the future roadmap for tackling the problem of greenhouse gas emission. More so because it comes at a time when the world's major economies have announced stimulus packages to try and prevent their economies from slipping into a recession.

True, the major economies differ on their commitments, actions and goals on cutting green house emissions. But the convening of such an annual meeting is based on the consensus that climate change is something that nations must jointly deal with.

It is encouraging that major EU economies proposed the goal of holding global warming at no more than a 2 degree Celsius increase from pre-industrial temperatures. This requires that greenhouse gas emission must be cut by 50 percent by 2050. If so, the developed countries will have to cut their emissions by 25 to 40 percent on the basis of the 1990 standards by 2020 and by 80 to 95 percent by 2050.

Another encouraging sign is US president-elect Barack Obama's promise that his government would take a leading role in combating climate change. United States is the only major developed country that has failed to sign the Kyoto Protocol. Any change in its policy on this matter will have a profound impact on the world's action.

This conference will continue the negotiations launched at the last conference about future policy, including technology transfer, afforestation and practical action on adaptation strategies for countries coping with the adverse effects of climate change.

The "common and differentiated responsibilities" that were reaffirmed at the Bali conference should continue to be the basis for future action.

And this principle, which is the cornerstone of UN Framework Convention on Climate Change, makes particular sense at present when financial turmoil will likely delay the economic progress of developing countries.

The developing countries' efforts in poverty alleviation are in danger of being offset by the financial turmoil. It is therefore necessary for the conference to push for a partnership between developed and developing countries to further combat climate change without holding back development. Therefore, technology transfer and financial help from developed countries are particularly important for developing countries in their efforts to raise their energy consumption efficiency. The developing world's commitments to action on climate change are facing new challenges because of their preoccupation with creating jobs and saving their economies from further slowdown.

This makes the partnership between developed and developing countries especially significant. The urgent need is to work out a better mode of cooperation that addresses the issue of climate change simultaneously with those of economic development.

This should be on the agenda of this conference.

(Source: China Daily)

Swiss Sinologist: Far-sighted policies bring great progress in China

GENEVA, Nov. 27 (Xinhua) -- China has made tremendous progress in many fields in the past years thanks to its far-sighted policies of reform and opening-up, according to a well-known Swiss Sinologist.

The reform policies have not only led to fast economic growth and the improvement of people's living standards, but also opened the door for exchanges with the outside world and made China an influential world power, Professor Harro von Senger told Xinhua in a recent interview.

Von Senger, a leading Sinologist and law expert, is best known for introducing China's ancient "36 stratagems" to the West in a German book first published in 1988.

A frequent visitor to China, he said the country's progress has also covered the area of human rights.


The reform policies have not only led to fast economic growth and the improvement of people's living standards, but also opened the door for exchanges with the outside world and made China an influential world power. (Xinhuanet Photo)


"Now the Chinese government attaches great importance to human rights, and it holds a very open attitude on this issue," he said, adding that he was in Beijing in April for a workshop on human rights and development.

Von Senger, who studied at Peking University from 1975 to 1977,said he was impressed by the progress Chinese universities have made in the past three decades and also lauded the country's overall educational system.

"In the 1970s, only a few Chinese universities ran law courses, and those courses were only limited to domestic students," he recalled.

"So I chose history and philosophy, two of the four majors that were on offer to foreigners as well at Peking University," he said.

"Now the situation is completely different... nearly all major Chinese universities have a Department of Law, and all courses are open to foreigners," he added.

According to the Sinologist, the policies of reform and opening-up are a product of the forethought of Chinese leaders, and there is no doubt that these policies will continue in years to come.

ALBA discusses solutions to financial crisis

Venezuela's President Hugo Chavez, sponsor of the Bolivarian Alternative for the Americas (ALBA) addresses the 3rd extraordinary summit of the ALBA in Caracas, capital of Venezuela, on Nov. 26, 2008. During the one-day meeting of the ALBA on Wednesday, the presidents of Venezuela, Nicaragua, Bolivia, Honduras and Ecuador discussed possible solutions to the current financial crisis. The ALBA trade alliance, set up by Cuba and Venezuela in 2004 as a fair trade alternative to U.S.-backed free trade policies, includes Bolivia, Nicaragua, Honduras and the Caribbean island of Dominica.(Xinhua Photo)


Leaders of seven countries attend the 3rd extraordinary summit of the Bolivarian Alternative for the Americas (ALBA) pose for a group photo in Caracas, capital of Venezuela, on Nov. 26, 2008. During the one-day meeting of the ALBA on Wednesday, the presidents of Venezuela, Nicaragua, Bolivia, Honduras and Ecuador discussed possible solutions to the current financial crisis. The ALBA trade alliance, set up by Cuba and Venezuela in 2004 as a fair trade alternative to U.S.-backed free trade policies, includes Bolivia, Nicaragua, Honduras and the Caribbean island of Dominica.(Xinhua Photo)

Public views to be sought for oil reforms

BEIJING, Nov. 27 -- The State Council said Wednesday it will seek public inputs on refined oil price reforms and the long-awaited fuel oil tax scheme.

The move is seen as a vital step to boost domestic demand as the government goes ahead with its steps to bolster economic sentiment.

The inputs will also lead to a fair taxation system and also enhance energy saving and environmental protection in the country, the State Council said.

Analysts said the move is a milestone in China's energy reforms. "The country should fully reform its energy sector to make it market-oriented," said Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University.

The tax on fuel oils will make people better understand the need for energy conservation, said Zhou Dadi, a researcher with the Energy Research Institute under the National Development and Reform Commission.

"As a country not very rich in energy resources, the enforcement of a tax on fuel oil will help China change previous energy consumption modes," said Zhou.

(Source: China Daily/By Wan Zhihong)

Devise mechanism for distribution of wealth

BEIJING, Nov. 26 -- Following a 4 trillion yuan (586 billion U.S. dollars) investment package recently announced by the central government to curb a possible economic downturn, people have been expecting the top authorities to work out a similar stimulus plan in the realm of consumption. In the long run, the latter will prove more effective in bolstering a sustained economic development.

As the leading economic engines, investment, export and consumption always produce different influences on a country's economy. With more flexibility and elasticity, investment can indeed bring an immediate effect to the overall economy. It can boost domestic needs in the early period of its implementation.

However, a large-scale investment will unavoidably increase product supplies to the market in two or three years, which are yet to be digested by an expanded consumer demand.

In other words, a forceful and workable investment plan could have immediate economic effects to a country, but it cannot serve as a long-term prop for its economic advancement in the absence of a parallel increase in the domestic demand capacity.

Worse, a large-scale investment is very likely to push up the prices of resources and thus fuel the overall rise of prices. Under such circumstances, deflation would ensue if the market fails to consume newly created products.

All these are enough to get at a conclusion: it is consumption that really serves as the key to a sustained and healthy economic development and any initiatives to step up investment would be more scientific and reasonable if they are pushed by a strengthened consumer demand.

So it is not difficult to understand why since the unveiling of the multi-trillion yuan stimulus package, there have been high expectations in the society for a similar stimulus package to boost domestic demand. Their coexistence will not only help avoid the emerging possibility of economic downturn, but will also be helpful to achieve a fruitful interaction between the government's macro-control policies and the market that usually fluctuates according to its own cyclical laws.

The success of the Chinese government's efforts to reactivate domestic needs depends on how it can raise people's income and set up an assuring system guarantee to encourage the country's large populations to consume after they get rich. The unprecedented severity in the domestic economic situation in the context of global economic slump should offer the government a rare opportunity to map out a far-reaching and considerate program to raise people's income by a large margin.

Our neighbor Japan once had a similar experience. As early as in 1960, it launched a program to double its people's income and started to revitalize consumer demand. The move turned out to be the turning point for the country's economic takeoff in the following years. In 1967, the average income of the country's people doubled from the level of 1960, and more than 90 percent of its families could afford to use durable consumer goods of various kinds.

Tokyo's practices should offer us some lessons. The exposed insufficiency in China's domestic needs already remained outstanding when the central government laid down macro-control initiatives as early as in the 1990s. However, no breakthrough has so far been made in this regard.

Japan's example also indicates that our country should also try to frame a reasonable wealth distribution mechanism among the government, enterprises and ordinary laborers, if it really wants to boost domestic demand. For this purpose, what the government should do first is to regard it as a long-term economic development guideline to make its people richer and go all out to raise their income at a faster speed. The pace of people's income growth in this country has long lagged behind that of the growth in government revenues.

Raising the individual income tax threshold by a large margin will be a positive move to transfer part of the country's wealth to individuals. Also, the government should make all efforts to set up a steady capital market to ensure ordinary people can gain a much-anticipated property income. Any drastic fluctuations in the stock market will affect people's expectations of income growth and are unfavorable to the whole economic operation.

When the gap between the rich and the poor further widens, it appears particularly important for the government to set up an effective guarantee mechanism to cover such disadvantageous groups as farmers and low-income residents. The strengthened consumption capability of this large group of people will also greatly help spur the country's domestic demand.

A reasonable wealth distribution mechanism also lies in whether or not we can amplify the voices of employees against employers in an effort to stop capital elements from excessively compromising labor ones. This, however, is a challenging task for the government.

On the one hand, administrative departments cannot directly intervene in the process of wealth distribution among employers and employees. On the other hand, some people remain very vocal against any move to raise employees' wages because they say the move will make struggling enterprises bankrupt. It is a short-sighted perception.

Low incomes of people will finally depress domestic demand, which has long been the lifeline of all enterprises.

(Source: China Daily/By Ma Hongman)

Stimulus package to push long-term growth

BEIJING, Nov. 12 -- As the international financial tsunami spreads to the whole world, darkening the gloom over the global economy, China has come up with a package of stimulus policy to boost its economy.

At a recent State Council meeting presided over by Premier Wen Jiabao, the central government vowed to adopt a proactive fiscal and a moderately loose monetary policy and take more forceful measures to spur domestic demand and promote a steady and relatively rapid economic growth.

The government announced a 4 trillion yuan (586 billion U.S. dollars) investment package before 2010. It ranges from building affordable houses for urban low-income residents to constructing major transportation networks and rural infrastructure; from stepping up development of medical care, culture and education to ecological construction; and from pushing for economic restructuring and innovation to improving people's living conditions.

To step up the construction pace, the central government has decided to allot an additional 100 billion yuan investment for this year.

All these measures serve to show the shift in the country's macro-control policy, according to Luo Yunyi, director the Institute of Investment Research under the National Development and Reform Commission (NDRC). The country had long clung to a prudent fiscal and tightened monetary policy to prevent the economy from overheating.

"To expand domestic demand through increasing fiscal investment is a viable short-term tool to offset the negative influences caused by the current export decline and inactive consumption. But it is also badly needed in the long run given that the country has to think over how to make full use of its huge size of savings and to meet the conditions for its accelerated process of urbanization and industrialization," he said.

It is expected that the stimulus package will help the sluggish markets and enterprises regain confidence. In the aftermath of the 1998 Asian financial crisis, China also turned to a proactive fiscal policy and that contributed a lot to the country's strong economic performance in the ensuing years.

"The unprecedented economic crisis in a century does need a forceful financial policy to counter it. The central government got to the point when it decided at the recent executive meeting to resort to a moderately loose currency policy because too much loosening may push inflation up once again," said Tang Min, vice-secretary-general of the China Development Research Foundation.

Different from the mainly currency-centered policy, such as lowering interest rates, taken by most countries to cope with the ongoing financial crisis, the Chinese government has also adopted a proactive financial approach alongside monetary measures.

Currency policies alone cannot solve the country's emerging economic problems in the current situation when domestic banks remain reluctant to lend and enterprises fall short of production confidence.

"The enormous economic stimulus plan is not meant to directly rescue the rocky financial organs as the US did. It will be used for infrastructure construction and improvement of people's medical care, culture and education. This will not only stoke economic growth but also press ahead with the country's structural reforms," he said.

According to Zhao Xijun, vice-president of the School of Finance under the Renmin University of China, the ongoing international financial crisis presents an occasion to test the governing capability of the Chinese government.

"The government's responsiveness to changed economic situations at home and abroad and its latest demand-boosting investment package have fully indicated its rich experiences and sophisticated tactics in driving the market economy," Zhao said.

"In the long term, all these measures will lay a solid foundation for an enduring and steady growth of the national economy."

By appropriating an added 100 billion-yuan investment in the fourth quarter of this year, the central government has demonstrated its determination to take immediate steps to counter the otherwise contracting economy in the context of global economic slowdown.

But how to ensure an effective use of the money remains a key issue. At an emergency meeting held by the NDRC, a clear-cut principle was laid out for the utilization of this huge amount of central government fund.

According to the country's top economic planning body, the additional money is due to be used in fields related to people's livelihoods, such as solving and improving people's housing conditions and constructing rural infrastructure.

The money will also be spent on the construction of the country's transport networks, ranging from pivotal railways, highways and airports, it said.

The NDRC also demanded the government money is used more for grassroots medical care, education and culture, especially those in the underdeveloped western regions.

To step up the country's economic restructuring and industrial upgrade, the NDRC said some innovative and hi-tech enterprises are due to get government financial supporting.

The article is based on a report published in People's Daily Tuesday.

(Source: (China Daily)

Argentinians demonstrate for global financial crisis

Members of labor unions demonstrate in front of the building of the labor department in Buenos Aires, capital of Argentina, Nov. 10, 2008. Demonstrators urged the government to take measures against bankruptcies and umemployment in the global financial crisis. (Xinhua/TELAM)


Members of labor unions demonstrate in front of the building of the labor department in Buenos Aires, capital of Argentina, Nov. 10, 2008.(Xinhua/TELAM)


Members of labor unions demonstrate in front of the building of the labor department in Buenos Aires, capital of Argentina, Nov. 10, 2008..(Xinhua/TELAM)

U.S. economy contracts in third quarter

WASHINGTON, Oct. 30 (Xinhua) -- The U.S. economy contracted in the third quarter of this year at an annual rate of 0.3 percent, signaling the country is likely heading into a recession, the Commerce Department reported Thursday.

This was the worst showing since the world's largest economy shrank at a pace of 1.4 percent in the third quarter of 2001, when the nation was suffering its last recession.

The contraction came as nervous consumers cut back on spending by 3.1 percent, the biggest amount since the second quarter of 1980.

It marked the first drop in consumer spending, which accounts for two thirds of the country's overall economic activity, since late 1991, when the economy was coming out of a recession.

In the July-to-September period, consumers cut back on purchases of cars, furniture, household appliances, clothes and other things.

Meanwhile, businesses cut spending on equipment and software at a 5.5 percent pace, the most since the first quarter of 2002.

Residential spending plunged at a 19.1 percent pace in the third quarter, marking the 11th consecutive quarterly decline.

Exports of goods and services, a major force pushing the economy to grow in the past quarters, slowed in the third quarter, reflecting less demand from overseas buyers who are coping with their own economic problems.

The nation's exports grew at a 5.9 percent pace in the third quarter, a sharp deceleration from the 12.3 percent growth rate in the second quarter.

Imports of goods and services, which are subtracted in the calculation of Gross Domestic Product (GDP), declined by 1.9 percent, compared with a sharper 7.3 percent plunge.

Spending by the federal government increased by 13.8 percent in the third quarter, more than double the 6.6 percent gain in the second quarter.

"Most of the major components contributed to the downturn in real GDP growth in the third quarter," the Commerce Department said in the report.

GDP measures the value of all goods and services produced within the United States. The third-quarter GDP data will be revised twice by the department.

The economic downturn in the third quarter was accompanied by higher inflation.

An inflation gauge tied to the GDP report showed the so-called "core" prices, which exclude volatile food and energy, rose at a 2.9 percent pace, up considerably from the 2.2 percent growth rate in the second quarter.

But the Federal Reserve, which is the U.S. central bank, predicts that the economy's slowdown will dampen inflation pressures in the months ahead.

The contraction in the third quarter was seen as a strong signal that a recession may have already begun.

The classic definition of a recession is two consecutive quarters of negative GDP. Many economists believe the economy will continue to shrink in the fourth quarter and early next year.

Trying to deal with the financial crisis and revive the economy, the Federal Reserve Wednesday cut a key interest rate by half a percentage point to a four-year low of 1 percent, the second rate cut in just three weeks.

Besides cutting interest rates, the Federal Reserve was extending credit lines worth 30 billion dollars each to the central banks of Brazil, Mexico, South Korea and Singapore in an effort to bolster financial markets in those countries and relieve investors' anxieties.

At the same time, the U.S. government started distributing funds Wednesday from the 700 billion dollar financial rescue package passed by Congress early this month.

The government was also nearing an agreement on a plan to help around 3 million homeowners avoid foreclosure. That would be the most aggressive effort to limit damage from the severe housing slump, which began in 2006, according to news reports Thursday.

"Policymakers have their foot to the accelerator and they are using every effort at their disposal to stop the slide in the economy and financial markets," Mark Zandi, chief economist with Moody's Economy.com, was quoted as saying.

"And it's not a moment too soon given the serious damage that has already been done," Zandi said.