Decoding China's Economic Facts and Figures

By Kang Yi, Wang Biqiang, Sun Jianfang
Published: 2009-03-10

From News, page 7, issue no. 409, March 9, 2009
Translated by Lin Li, Zhang Junting
Original article:

What are the significance of the long string of numbers spoken by Chinese premier Wen Jiabao in his recently presented working report?

At the opening ceremony of the National People's Congress (NPC) last week, Wen had said that China's GDP growth target this year was 8%, that there would be nine million new jobs created, five trillion yuan of additional loans, tax cuts of 500 billion yuan.

To look beyond the data and to the possible impacts they will have on China, the Economic Observer invited:

Zhang Libing, director of labor research at the Institute of Labor Science at the Human Resources and Social Security Ministry.
Lu Zhengwei, chief economist of Industrial Bank's capital operation center
Zou Pingzuo, researcher at the People's Bank of China's Financial Research Center
Wang Xiaohui, an economic analyst at Sinolink Securities.
Zhu Baoliang, chief economist of the State Information Center's forecast department

New Jobs Creation: 9 million

Zhang Libin:
In 2009, it is estimated that the labor force will increase by 24 million in urban areas and among them, 7.1 million will be recent college graduates. In the meantime, nine million new jobs will be created, according to this year's government working report, which means 15 million people might be jobless in 2009. The employment rate for college graduates this year will likely be 60% to 70% lower than past years, that is to say, there might be two to three millions jobless college graduates in 2009.

The projection of the additional labor force is based on GDP growth, namely an estimation of how many new jobs are going to be created by each percentage of growth. Our estimation is that 1% of growth may create 650,000 new jobs.

Besides economic growth, government policies may also contribute to job creation. For instance, promoting non-profit and charity work can create new positions. In fact, in this sector some one million jobs were created last year.

The government working report did not mention when this gloomy economic situation would improve, and uncertainties remained for the future job market.

The working report has stated that 42 billion yuan will be spent on promoting employment, 16.8 billion yuan or 66.7% more than last year's. However, the specific breakdown of the spending has yet to be set. I believe the employment target can be realized, but the outcome of the five employment measures introduced recently depends largely on effective implementation.

New Additional Loans: At Least 5-trillion-yuan.

Lu Zhengwei: This is the first time the government has given a specific figure - five trillion yuan - for new additional loans to be released in a year. Previously, it only provided the targeted growth rate of broad money supply. It is logical to set a target--in order to maintain economic growth, there must be enough credit around to fuel it.

There's also an interesting point we must take note of- the government only stated the minimum amount of new additional loans, but it did not set a ceiling. In other words, the new additional loans this year can be any number beyond five trillion yuan.

The current credit issuance trend has two major characteristics - one, the proportion of commercial paper funding is high, and two, most of the credit is medium-long term. This trend reveals that banks are still very cautious in lending. In addition, credit demand from non-state-owned sector has been slow. Under these circumstances, I doubt the expansionism of credit is sustainable.

I believe this lending trend is here to stay, although the ratio of commercial paper funding as oppose to other credit facilities may lessen in February compared to January, it is mainly due to the government's macro control policies. If the commercial banks have their way, they would be unwilling to change their lending preference.

Zou Pingzuo: The five-trillion-yuan in additional loans is only a floor target, and in the first two months of this year alone, we have already seen some two trillion yuan of new loans being released. I project that in the first quarter alone, the new loans released could reach three trillion yuan and above. I am quite confident that the total new additional loans for the entire year would be much more than the floor target.

I believe the new additional loans would be channeled increasingly toward promoting job creation. Thus, more credit may be made available to labor-intensive companies and the service sector. In addition, allocations for government investment projects were also likely to expand. Technology advancement and upgrading, as well as innovative businesses, and the real estate industry would also benefit from credit expansion.

Fiscal Deficit: 950 billion yuan, but room for more.

Wang Xiaohui:
This year's budget deficit jumped by 770 billion yuan compared to last year. If we calculate on the basis that 2009 nominal GDP would grow by 8%, then the fiscal deficit would be 2.92% of GDP. In comparison, the US fiscal deficit for 2009 would take up 12.5% of its GDP. In other words, China's fiscal condition was still rather healthy. However, if the economy slows further, the government might even enlarge the scale of fiscal spending further.

Lu Zhengwei: I think the option to enlarge fiscal spending is always open. I have made a rough calculation, if the safe ceiling for the budget deficit is placed at 3% of GDP, then we still have a room of 0.07% for fiscal enlargement, or about 230 billion yuan. However, I believe we should not be limited by the 3% bar, which is a standard set by the EU countries to ensure stable fiscal records, as it is a very conservative figure.

Central Government Investment: 908 billion yuan

Zhu Baoliang:
The central government has set aside 908 billion yuan this year for public investment; of this amount, 487.5-billion-yuan is additional allocation. The main investment targets are in public infrastructure like railways, roads, airports, and ports, taking up 231.7 billion yuan. For agricultural and rural development projects, 208.1 billion yuan has been allocated. Post-quake reconstruction funding will take up to 130 billion yuan, and the remaining will go to education, health care, housing and ecological projects.

Wang Xiaohui: From the fourth quarter of 2008 to year-end 2010, the central government intends to invest a total of 1.18 trillion yuan. Of this amount, the government has released an additional 104 billion yuan in 2008, and this year, the additional allocation was 487.5 billion yuan. In 2010, the additional investment would likely go up by 588.5 billion yuan. Based on this, the additional investment for 2009 forms 41.3% of the entire 1.18 trillion yuan.