Translated by English edition staff
Cover editorial
Original article: [Chinese]

Vietnam's economic crisis has been seen as an omen for China, bringing widespread pessimism to the outlook for China's economy.

For the past several years, the Chinese economy had been moving on an ideal track. In 2008, however, it was broken—now, there is a risk of slower GDP growth, higher inflation, and more unemployment.

Global oil and food prices have been surging. The depreciation of dollar has led to fewer exports. Overheated investment has triggered a productivity surplus crisis. The ever-increasing trade surplus has accumulated massive excess liquidity. And there's more... the negative real interest rate, the eccentric exchange rate, the pessimistic outlook on corporate profits, the climbing Producer Price Index (PPI)...

All these inevitably cause worry over the economic outlook. Some macro-economists believe that these problems have become the "Rockfeller's problem" where the Chinese government has no way of finding the best solution.

So, when all is said and done, should we remain confident?

Yes, but it is undeniable that in the short run, certain factors will dampen expectations of a strong economy.

One factor is the unavoidable economic cycle. There are usually four phases of a country's economic circle: slow growth, low inflation--rapid growth, low inflation—rapid growth, high inflation—slow growth, high inflation. The phase China is presently in is the third, and in the following period, the economy might remain in its throes. With this in mind, the current pessimism of investors is understandable.

Repairing past mistakes is another factor. The rapid growth in past years once turned the Chinese people to worshippers of GDP—they thought the economy was only normal when GDP was above 8%, and hence neglected to conserve the environment and resources, to improve production security and product quality, or to protect labor and public welfare. When focus turns to these problems, a loss of output, or a slowdown of the economic growth, will be inevitable.

But have these factors already fundamentally altered China's prospects for long-term growth? Will the basic dynamics of economic growth still exist in China?

Affected by a slackening of foreign demand caused by United States sub-prime loan crisis, China's export growth had declined during the first four months of 2008. However, the most recent figures show that export growth began to increase in May. It also shows that export quantity of primary, low-processing-cost and low-value-added products have slowed down, or reduced, while exports of high-tech productions have grown significantly. This shows that China's export structure has been improved.

Besides exports, domestic demand and investment will become engines of China's economy. As China is still in a stage of economic take- off and domestic infrastructure improvements will be implemented at a large scale in 2008, China's investment growth will maintain itself, as the basic dynamics which maintain overall economic growth still exist.

So compared with other economic entities, China still abounds with opportunities and advantages. A strong vote of confidence lies in the still-increasing foreign direct investment and a growing flow of people with overseas experience returning to China.

Perhaps, we has ever produced similar pessimistic sentiments when we look back to the past decades like American 9?11 incident, Asia finance crisis in 1997 and the earlier domestic inflation in 1993 to 1994. However, these circumstances didn't shift our economic upward development trend.

Certainly, we also seek to know to whether policy can smooth over economic cycles and lower risk. Policy is always at odds with predictions of the economy's fate. Though upward inflation, hot money, the pending price reform and foreign exchange mechanism problems are all testing the strength of policymakers, at least, we has already seen some positive outcomes under the current macro-control policy, like the fading worries of a heated economy, the decline of consumer price index, and improvements in the terms of trade terms.

With this backdrop, we believe that though China's economic prospects may not be ideal, its upward development curve won't be changed beyond a modest adjustment. We should maintain firm confidence in the future of the Chinese economy.