A NEW SPURT OF HIGH GROWTH

China's economy in 2005 registered another year of surging growth, with its total GDP (based on recent revision) expanding at 9.9 per cent to reach 18.23 trillion yuan (or US$2.26 trillion). Growth in 2005 was just marginally lower than the 10.1 per cent of 2004. In fact, China's economy since 2001, when China gained accession into the WTO, has experienced a new spurt of high growth with its GDP expanding at the average rate of 9.8 per cent for the period 2002–05, higher than the annual average of 9.6 per cent for the whole period of 1979–2004. (Figure 2.1). The last spurt of high growth occurred in the early 1990s when Deng Xiaoping embarked on a “grand tour of South China” (nanxun), which touched off an upsurge of investment (both domestic and foreign) and industrial production for the period of 1992–96, giving rise to double-digit rates of economic growth and also double-digit rates of inflation. Subsequently, Premier Zhu Rongji had to introduce tough macro-economic control measures to bring the economy to a soft landing in 1996. The present spurt of high growth had initially also sparked fears of overheating, which, however, never materialized.

What are the underlying causes for the present spurt of dynamic growth? First, whereas the previous spurt of high growth was primarily investment driven, this time round it was fuelled by both high domestic investment (that is, domestic demand) and high exports (that is, external demand). For the period of 2001–05, as will be further discussed later, exports grew at the hefty average rate of 30 per cent while domestic investment grew at 24 per cent.

Such dynamic expansion of exports in recent years bears the best testimony to the positive “WTO effects” on China. Indeed, China's economy post- WTO has become much more closely integrated with the global economy, leading to a large influx of foreign direct investment (FDI) and the rapid expansion of the export-oriented manufacturing activities. This explains why in recent years over 50 per cent of China's exports are carried out by foreign invested enterprises.