You Can Doubt the Quality of the Recovery, but you Can't Doubt the Recovery

However, although we can doubt the quality of the economic recovery taking place, we can't doubt the pace of the recovery.

Looking back to the start of the year, when the Chinese government set a GDP growth rate target of 8% and predicted that money supply would grow by 17%, a lot of people were both doubtful and critical.

The macroeconomic data released in the months that followed, completely demolished this initial scepticism. Now, most of those who questioned the estimates, no longer bring up the issue of whether these targets were realistic or not.

Regardless of whether you look at international economic statistics or domestic macroeconomic indicators, China's economy appears to be on the road to recovery.

In relation to the pace of China's economic recovery, those that remain sceptical believe that according to the fundamentals of economic theory and the cyclical nature of the economy, both the global and Chinese economies are unlikely to make a quick start on the road to recovery.

They believe that China will need close to 5 years before it can get itself back on track.

If we look at the three engines that are powering economic growth in China, although exports continue to decline, the two other major domesic factors continue to pull their weight.

Consumption data remains stable and is likely to increase and the demand created by government investment continues to expand, a situation that is likely to last for the rest of the year.

So, when China's first quarter economic data was released, the chief economist of the National Bureau of Statistics (NBS), Yao Jingyuan, forecast that growth rates would continue to increase over the next few quarters.

At the time, many economists declined to comment on his prediction, now that the numbers have begun to change for the better, more and more economists are begining to support this view.

Still, although we can believe in the pace of economic growth, we can only be cautiously optimistic about the quality of economic growth.

In April, the Chinese Academy of Social Science (CASS) undertook an investigation of the government's huge investment projects. Results revealed that of those projects that were already under way, although nearly all the capital from the central government had come forward, investment promised by local governments was still absent.

In addition to this, some of the projects also had major qualitative problems.

Accordingly, they reached the conclusion that in the short term these projects appear to offer little risk, but in the long term the projects were risky and would be plagued by major problems.

That said, just as senior research fellow Chen Naixing of the Chinese Academy of Social Science's SME Research Center noted, the pace and quality of economic growth are interrelated.

If the rate of economic growth is too slow, it's impossible to talk about its quality.

The majority of high-level Chinese government officials all believe China can solve its problems while developing. In reality, not all problems can be solved while the economy is in the midst of development.

At the moment the unbalanced structure of economic growth could trigger another slide in the economy, dragging it down even further.

Because of this, as the economy gradually begins to recover, the government should actively attempt to resolve a variety of problems including excess capacity, energy conservation and environmental protection, financing SMEs and social insurance.

In this way, the economy will start on the road to a qualitative recovery as opposed to a simple quantitative recovery.

Policy makers appear to be aware of the risks. On June 17, Premier of China's State Council, Wen Jiabao, presided over a meeting of the State Council, but unlike the first quarter meeting in which the policy of expanding investment was the first item on the agenda, the priority item of this meeting was how to continue to adjust the structure of the economy.

Policy makers appear to be giving a clear policy signal, namely, they don't want poor quality growth, or economic growth that leaves huge invisible costs in its wake.

That the government has chosen at this, in the words of Wen Jiabao, "critical moment when China's economy is beginning to recover steadily," to reiterate the importance of adjusting the structure of economic growth, is also a sign that a method based on ramming through a series of projects aimed at boosting GDP growth, but that ignore both reality and environment concerns, will no longer be tolerated.

Perhaps the proof of this change in attitude is that the Ministry of Environmental Protection, after months of silence, is once again out there waving the flag of environmental protection.