The Chinese economy is expected to grow fast in 2007 despite deep-rooted structural faults. The faults include lax control of excessive monetary volatility; no guarantee yet of solid institutional mechanisms to slow the growth in fixed-asset investment and credit extension; grave challenges confronting energy conservation and environmental protection.
 
　　Short-term economic growth depends largely on the relationship between demand and supply. So let us analyze the demand in investment, consumption and the trade surpluses enjoyed by the country.

　　First, the investment growth rate is slowing slightly.

　　Considering the country's economic development climate, investment enthusiasm will not dampen much.

　　According to calculations by professor Song Guoqing from the Research Institute for Chinese Economy at Peking University, the investment return rate has been climbing from 6 percent in 1999 to the current 18 percent, the highest level in major economies worldwide. Even when the factor of over-estimation is taken into consideration, the return rate for investment in China's industrial enterprises and economic entities still remains on a fairly high level.

　　In this scenario, economic growth driven by investment is expected to continue.
　　Something, however, should not go unnoticed.

　　In 2006, a host of policies and measures were crafted to control the growth of investment in fixed assets. These included monetary policies meant to control overall supply and demand and regulations designed to strengthen the management of short-term demand. Other measures aimed to improve the investment structure and to improve the quality of economic growth, in particular land use management. The effects of these policies and regulations are expected to be seen in 2007.

　　Assuming that the policies are carried out to the letter, the growth rate of investments in fixed-assets will, hopefully, slow.

　　Second, the consumer market remains buoyant.

　　The year 2007 can expect a host of factors favorable to consumption. Over the last couple of years, the government has been emphasizing the paramount importance of domestic consumption powering economic growth. The government, therefore, has formulated a package of policies to boost consumption.

　　Measures, for example, have been taken to increase farmers' income. And the ceilings on minimum wages have been lifted a bit. Regulations and mechanisms have been introduced to prevent delaying payment of wages. The tax burden on lower-income groups has been lessened.

　　In recent years, the social security system has been improved and the problems involving people's education, healthcare and buying housing have been addressed.

　　All this helps relieve worries of consumers when they increase consumption.

　　Efforts have also been made to tap the rural consumer market, which has been lying dormant for years.

　　All these policies and measures are paying off. In 2006, urban and township residents' income went up in pace with the economic growth rate. And farmers have seen a steady increase in their income for a number of years in a row.

　　In addition, the booming economy has obviously helped boost consumers' confidence.
　　In 2007, polices encouraging consumption will continue and urban and rural income is expected to go up fairly fast.

　　As a result, the strong consumer demand will continue in the new year.

　　Some negative factors, however, ought not to be ignored. The housing market is expected to slow down, due to the government's macro-control policies. As a result, housing-related expenditures such as furniture purchases and home decoration are expected to decline.

　　The momentum of farmers' rapid increase in income will be hard to sustain in 2007.

　　Taking everything into account, we can expect that the total volume of retail sales in 2007 will increase fairly fast and that people's spending on transportation, telecommunication, travel, restaurants, education and healthcare will outstrip their expenditures on commodities.

　　Third, the rate of increase in the country's trade surplus will slow.

　　Domestically, a number of measures went into effect in the latter half of 2006 to promote the international balance of payments and alter the ways in which the country's foreign trade grows. In addition, the policies to slow the increase in exports and cool off the economy are expected to have a significant influence on the country's exports.

　　Although the rate of growth of China's trade surplus will slow in 2007, the size of the country's international trade will continue to expand in the new year. This is explained by a number of factors.

　　China still enjoys the advantage of low labor costs. And enterprises' technological progress enhances the competitiveness of Chinese goods. The country still enjoys an advantageous position in world trade thanks to its foreign trade structure based on processing trade.

　　All these factors give credibility to forecasts that the growth rate of China's economy will continue at around 10 percent.

　　The author is an economist with the State Information Center