China Presses Ahead with Macroeconomic Adjustment Measures

By Tang Zhengyu, Rachael Wellby and Wu Min, Sidley Austin Brown & Wood, Shanghai

In a recently published study of economic growth in China, the International Monetary Fund concluded that "China has continued its rapid economic growth and integration into the global economy", but warned that "despite recent indications of moderation in the fast pace of investment and economic growth, a soft landing of the economy is not yet assured".¹ Ma Kai, head of the Chinese National Development and Reform Commission, echoed the IMF's sentiments. He stated that "the initial achievements are the first stage and more must be done to meet requirements to improve macroeconomic control".²

In the first half of 2004, China's GDP increased by 9.7%, significantly more than the full-year target of 7%. However, the IMF reported that indicators suggested that economic activity was beginning to slow, and predicted that growth should ease to around 7.5% in 2005 over 2004. While the issuance of new bank loans was reported to remain high, with a year on year increase of 29% by the end of July, the IMF assessment that "improved lending practices have contributed to a decline in the reported ratio of non-performing loans to total loans" is good news for China's economic policy makers.