Recent social and economic life in China, whether commodity prices or the stock market price or market price, there is not optimistic about changes. In this one, there are several factors at work. This article through the in-depth analysis of the current economic situation in China, its main influence factors analysis of the case, attempting to start with the reasons put forward a number of useful recommendations on economic development in today’s China.
First, the current status of economic development in China
China’s rapid economic development and a smooth, in 2006 and 2007, as always, still maintain a relatively fast development speed and smooth, good macroeconomic development, coupled with the good trend of development of the stock market and real estate market in recent years, investment enthusiasm in people getting higher and higher, significant increase in stock price and house price inflation. Meanwhile, prices of other commodities also increased, especially since the second half of 2007, food prices are soaring, people’s survival pressure increases, many people wrote comments to China’s “inflation” phenomenon, this is also the Government, perceptive, and issues of common interest and concern to all layers of society. In response to these rising stock and property prices and the inflation problem, we will be analyzed one by one.
Second, the main problems in China’s economic development and its reason analysis
(A) developments in the stock market and its causes
Since 2005 the share-trading reform, China’s stock market situation is gradually improving, to Shanghai as an example, in 2005, around 1100, and by 2007, Supreme had reached 6,100 points, just two years, an increase of 5,000 points. However, beginning in November 2007, the stock market began to decrease, in September 2008, has fallen to around 2000. People also flock from 2007 on the stock market, into ways how to walk away from stock market nowadays.
This is a non-tradable shares reform and appreciation of the background for stocks to rally. Share-trading reform realized the stock entire circulation, on the Chinese economy as a whole, this reform undoubtedly is a milestone in the move towards market-oriented, on July 21, 2005, the appreciation of RMB 2%, from the original $ 1 is equal to 8. 27 million adjusted to us $ 1 is equal to 8. 11 Yuan. The timing appropriate appreciation, not only changed the market expectations at the time, but also fit and promote the share reform, both promoting the process of the marketization of China’s stock market. Soon, however, when more and more influx of capital stock, and when the value has not been a substantial increase in the stock itself, you will have a stock market bubble and foam are bound to be broken. In addition, the national austerity policies are also important reasons. From March 2007 to August, the central bank interest rates on four occasions, makes financial institutions deposit-lending interest rate for the period from 2. 52%, 6. 12% to 3. 60%, 7. 2%. Previous “more austerity, rising” phenomena of different, the tightening effect on the market have had a change of direction. Internal causes of the above can be called stocks fell. In addition, changes in the international environment on China’s stock market also have the effect not to be ignored, the end of 2007 of the United States subprime mortgage crisis also affected the stock market in China through a series of transmission mechanism, can be seen as China’s stock market fell by external causes.
(Ii) development of the real estate market changes and the reasons
Real estate industry as closely related to the people living in an industry, rise in house prices is not just an economic phenomenon. Indicators for measuring price rises many, as a factor in the growth of GDP, from the people’s burden of survival point of view. We start with the House prices than this indicator, after 2003, house price growth to accelerate, rising trends in the housing price to income ratio, especially in some big city prices soaring.
Some scholars through study found that Chinese prices in different income groups than the gap is large. In 2005, for example, the lowest income households in China House price earnings ratio is 22. 69, and was 236% in the same group the international average; middle income housing price to income ratio was 7. 75, and was 86% in the same group the international average; the highest income households house price earnings ratio is 2. 45, and only 44% in the same group the international average. In 2005, house price earnings ratio of highest and lowest income gap in China is 20. 24, while the international maximum and minimum gap was 7. 8, only China 39%. Although average prices in China than it is not too high, but House prices show income gap of income than the gap issue has exposed, protection of the right to basic living of low-income families in has become a problem, and under market economy conditions, middle-and low-income families are less likely to significantly improve the ability of the purchase by increasing income, this will require government housing policies play a role.
(C) the price increases and why
Rise in consumer price level in China, especially food, more is to show up to 17. 6% per cent. According to China’s National Bureau of statistics revealed that in 2007, CPI of 1 per cent by the end of 2006. 5% soared to 4. 8% per cent since 1996, CPI rose 8. Highest level since 3%. This also broke the Chinese CPI has been maintained over the years within the 3% situation, to some extent, compared to the speed of the rise and development of China’s GDP is not consistent. Therefore, many people believe that China’s “inflation”. In fact, since the end of 2006 in China have seen both prices of food commodities, although the Government has come forward to stabilize grain prices soon, but experts believe that the situation of grain and oil prices will continue into 2007, development sure enough of the facts, and the scale of the speed of the great, far more than people had expected. The “inflation” of the many reasons.
First of all, from the macro-economic development. 2007 GDP growth rate as high as 11. 44%.
Secondly, the growth of cereal, oil and meat prices in the short term, lies in the inadequate supply of consumer goods market, leading to rising prices. As we all know, is the origin of this round of price increases resulting from an insufficient market supply pork prices rising rapidly in the short term. Next is the consequence of, on the whole price chain barrage followed the price of other commodities, which have a general rate increase. From the perspective of global scope, all countries are facing the threat of inflation, suggesting that rising prices is a global issue, and among the countries of the economic effects are becoming closer, this has to a certain extent promote the inflationary pressure in China.
Again, the stock and property prices in the two assets surge and rapid expansion of bank credit. This round of economic growth in China, the largest is the driving force of two asset prices. Rapid development of the real estate market, prices soared, rapid expansion of bank credit; domestic stock markets rise, gradually out of dependence on bank financing of real estate company, turned from the stock market, which pushed stock prices higher. In this process, the rapid expansion of bank credit is the root cause of inflation. In General, with the growth of GDP, currency circulation, there will be growth, growth rate of the two should be consistent. China’s money supply growth relative to GDP is too fast, leading to excess liquidity, the social economy is an inevitable phenomenon of inflation. Monetary excess liquidity, and further increases in asset prices, focusing on real estate and stock market formed a by the surge in asset prices, after a credit expansion, resulting in liquidity is too large, resulting in a vicious cycle of inflation.
Third, the relevant recommendations and measures
The author believes that the “inflation” is not the overall inflation, but prices growth food classes and reside in the top two classes it is the relationship between people and the most closely related to the industry, necessity of demand elasticity is very small, if prices continue to rise, low-income people living in pressure will be even greater. Judging from these two types of industry price growth, inflationary pressures have been very large. For the “inflation” we should take the following measures:
First, for the “inflation” is the origin of the rapid growth of cereal, oil and meat prices in the short term, the Government should take some measures to encourage farmers to plant crops and livestock. A large number of young labor in China’s rural population flocked to the city, has made an indelible contribution to the urbanization construction in China, but it makes agricultural production increased slowly. China has always been agricultural country, agricultural country but now cannot guarantee that the country’s food supply, and the shortage of labor in the countryside have a great relationship. Author believes that States should take some measures to attract and retain young people to stay in rural areas, and increase input on rural funds, equipment and technology, increase productivity, provide more food needed for the market, this is where the fundamental solution to soaring food prices.
Second, as mentioned before “inflation” it boils down to is a monetary phenomenon, to resolve the phenomenon need to proceed from the currency. Government has repeatedly raising the deposit reserve ratio, and can use open market operations, issuing bonds to absorb excess funds in the market. And compared to the other two monetary policy, open market operations the greatest advantage of operating flexibility, small shock to the economy. The other hand, controlling the money supply, so as to control the phenomenon of overheating.
Thirdly, this “inflation” is an important driver of the two asset prices skyrocket, so, to ease the inflationary pressure, must be on two major asset markets regulation. Such as the Central Bank can require commercial banks to reduce credit to real estate and stock markets, reduced into two large amount of funds in the asset markets; restrictions on the consumption of durable goods for the credit to prevent property speculation; securities margin rate to curb excessive speculation in the stock market. In addition, strict supervision work on the transfer of the land of the Government, for government departments to transfer the land as a means for personal gain, national to harsh suppression.
[Reference]
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