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Shirley Yam

It's tough to write a column for the second day of a new year. Everyone is in a mood to look forward. So I have no choice but to attempt a preview.
With all eyes on China, I have to do some fortune telling about the country's economy. But without a doctorate degree in economics, I  must seek help from a  crystal ball. I ask: 'Abracadabra, show me the 2010 Chinese economy!'
From out of the pink haze, I  can see four numbers - 2007. Oops, I must have used the wrong incantation. I try again, but still all I can see is 2007.  
It can't be the rate of growth. That would be too high. Could  it be the Shanghai A-share index? No, I am asking it about the economy. Is it supposed to  mean the year 2007? What happened that year?
I went to the source of official information - Xinhua. After reading the headlines, I can see what the crystal ball is trying to say. Here are the headlines:
2007: the year of regulating property price (January 7) 
Premier Wen says China to act to prevent excessive credit, investment growth (January 26)
China 2007 GDP growth seen below 10 per cent, Consumer Price Index up 1.5-2 per cent - state planner (January 31) 
Does this sound familiar?  Premier Wen Jiabao said something along these lines in a televised interview last week. Back in early 2007, everybody was having a good time  following the 10.6 per cent growth in gross domestic product in 2006 and a buoyant property market.  But let's  read on:
First rate hike in 2007 (March 17)
China PBOC's Zhou not worried about current inflation (March 21)
It didn't matter that consumer price inflation had begun rising at well over 2 per cent towards the end of 2006, hitting 2.7 per cent in February and getting close to the 3per cent target. No official can easily admit any concern over inflation - that's politically taboo in China. You are going to hear the same line in the coming months.
The regulation of property price on which the central government has put much emphasis should now become a matter of self awareness for local government (May 14)
 But local government had no interest in cooling property prices and the central government had  few means of changing this in 2007.  It will be the same  in 2010.
Central bank strikes with financial measures to prevent the economy from over-heating (May 20) 
Another moderate rate hike (May 20)
The central bank was getting nervous about inflation. But there was not much it could do other than convincing the premier to lift rates. Yet, a rate  increase has never been a very effective means of cooling the economy. After all, borrowing costs are so distorted, and it is rarely a concern for state enterprises.
China needs to 'appropriately' tighten monetary policy - Premier Wen (June 14)
Property market spearheaded the excessive growth in fixed asset investment in the first half (July 4)
Central bank lifts lending rate by 0.27 basis point (July 20)
China economy not overheating - Statistics Bureau chief economist (July 22)
China banking regulator says credit growth slows down to 15 per cent for 2007 (July 22)
How the property gang (local officials, developers, academics and journalists) unarmed the cooling measures (August 13)
Six months have passed and Beijing's public pledges to curb excessive investment growth and property price  increases have had little effect. Wen went for a tougher line. But turning words into action took another few months given disagreement from departments with vested interests.
Size of A-share market first surpasses GDP (August 9)
The stock market's development healthy and stable (August 12)
Taking real cooling measures is different in a country where state leaders are so concerned with the ups and downs of the stock market. Back then, the Shanghai A-share index had already risen 100 per cent to over 4,700 and every bureaucrat knew the economy was overheating. Instead of   cooling the bull market, the state added fuel. The index hit 6,200 in October and took more victims in the  correction.
China central bank raises lending and deposit rates (August 22)
China central bank announces the fifth rate hike to curb inflation expectation (September 15)
China banking regulator says 2007 bank loan growth to exceed 15 per cent (November 18)
China to shift monetary policy from 'prudent' to 'tight' (Dec 5)
With all the red lights flashing, Beijing finally agreed on the need to fight 'overheating and inflation'. The result  was 13 per cent GDP growth for 2007, a 12-year high inflation rate and the launch of various aggressive administrative measures, such as loan curbs and price controls in 2008. 
I guess the crystal ball is saying that 2010 is going to be a replay of 2007. Given the few structural changes we have seen in the mainland's economic and political sectors, I tend to agree.
I hope that is the case. Because, unlike 2007, 2010 inherits some serious issues: a top down campaign to boost the economy; a four trillion yuan stimulus package; 10 trillion yuan in new credit; and a global liquidity flow.  Let's hope for the best.
shirley.yam@scmp.com



Crystal ball says it's back to the future