主题：【文摘】格老和周小川眼里的中国经济现状 -- 西风陶陶

Who's Right About China -- Greenspan or Zhou?: Andy Mukherjee

Aug. 26 (Bloomberg) -- Within a span of 48 hours, investors received dramatically different report cards on the Chinese economy from two highly influential sources.

On Monday, Chinese central bank Governor Zhou Xiaochuan said in a speech that the current economic expansion has ``not evidently eased.'' U.S. Federal Reserve Chairman Alan Greenspan seemed to disagree, saying Beijing's cooling measures have ``muffled the boom'' in the world's fastest-growing economy.

Who's right? Perhaps both.

Zhou, whose main concern is price stability, is looking at the inflation rate, which has soared to a seven-year high of 5.3 percent. Greenspan, who must weigh the risk of an Asian slowdown while setting the Federal Funds rate, may be focusing on China's industrial production, which has slowed by a third in the past five months.

The two trends are moving in opposite directions because China's credit curbs, while ``muffling the boom,'' aren't solving the problem of over-investment, estimated by Morgan Stanley economist Andy Xie at $200 billion. Inflation is climbing in China because of over-investment, not over-consumption.

Growth in fixed-asset investment, especially in overheated industries like steel, cement and property, continues unabated, as seen from a 31 percent expansion from a year earlier in the first seven months of 2004.

``This raises doubts,'' says Eddie Wong, ABN Amro's chief Asian strategist, ``as to how effective the administrative measures have been so far in achieving the government targets of deflating the fixed-asset investment bubble.''

Credit Crunch

The outcome isn't surprising when you consider that China's financial system has a tendency to misallocate capital. A credit squeeze leads to working capital shortages for China's well- functioning private sector, including exporters, while it doesn't halt expansion by the less-productive state-run companies.

According to Xie, chief economist at Morgan Stanley Asia Ltd., companies are borrowing working capital at black market rates of 20 percent, even as the benchmark one-year lending rate stays fixed at 5.3 percent.

``The strongest determinant of capital allocation rule in China,'' say researchers Genevieve Boyreau-Debray and Shang-Jin Wei in a Center for Economic Policy Research discussion paper, ``appears to be the prominence of state-owned enterprises. An investment allocation rule by the government that favors SOEs would allocate capital systematically away from more productive regions and towards less productive ones.''

``In this sense,'' the researchers conclude, ``a smaller role of the government in the allocation of capital might increase the growth rate of the economy.''

Private Businesses

China's planners are trying to do just that. Last month, the government announced it will simplify procedures for setting up private businesses, while at the same time make it difficult for state-owned enterprises to expand. Premier Wen Jiabao promised that private entrepreneurs will get a fair deal in securing finances, China Central Television said.

It's clear that state- and collectively owned companies, which make up three-fifths of the Chinese economy, can't deliver either profits or jobs, especially if overall growth slows down.

``There are many state companies,'' says Ken Courtis, vice chairman in Asia at Goldman Sachs Group Inc., ``that aren't making it today at 9 percent to 10 percent growth. How could they ever make it at 4 or 5 percent? The government is now moving to put more support under that part of the economy that will be creating the jobs for the future.''

It is, however, a complicated exercise. If the private sector doesn't grow fast enough to absorb the millions of workers being fired by unprofitable state factories every year, China's very significant unemployment challenge will only worsen.

Interest Rates

In the final analysis, China may be wrong to depend on blunt instruments like credit rationing to ensure that money reaches the productive private sector. As long as real interest rates are negative, it just won't happen.

Raising rates will be a better way to ensure credit flows out of what Chinese authorities call ``blind investments,'' especially by state firms.

Otherwise, credit shortages could bring on the same hard landing that China is eager to avoid.

Greenspan said in a response to Republican Senator Richard Shelby's questions that economic growth in Japan and elsewhere in Asia faces ``significant risks'' from ``the possibility of a hard landing in China.''

Still, according to Xie, it won't matter if China has a ``soft'' landing, or a ``hard'' one. Ultimately, the most- populous nation will become a rich country.

``You can enjoy its wealth too,'' Xie assures us, ``if you're still in business.''