According to Qiu Xiaohua, head of the National Bureau of Statistics, there is a significant disparity between the factory prices of industrial goods and the rising costs of raw materials, which has caused enterprise expenses to surge by over 100 billion yuan. Many businesses are now struggling to maintain profitability, with some even facing losses.
At the 2006 annual meeting of the Chinese Society for the Study of American Economics and the inauguration of the Institute of Advanced Studies at Shanghai University of Finance and Economics, Qiu Xiaohua introduced the term "scissors gap" to describe the growing challenges faced by enterprises and farmers in increasing their incomes. The first "scissors gap" refers to the widening difference between the modest 2.6% increase in factory prices of industrial products and the much higher 5.9% rise in the cost of raw materials. This imbalance has led to a massive increase in corporate costs. While overall corporate profits in the first five months of the year rose by 25.5%, more than 80% of this growth was concentrated in just five major sectors—oil, electricity, coal, and non-ferrous metals—while over 30 other industries saw less than 20% of the total profit gain. This clearly shows that most companies are barely profitable or even losing money.
The second "scissors gap" lies in the agricultural sector, where the prices of inputs like plastics, pesticides, diesel, and seeds have risen by double digits, while the price increases for agricultural products remain minimal, only 1% to 2%. In 2005, the average farmer’s per capita consumption exceeded 100 yuan, yet government subsidies and tax reductions for farmers were only around 42.4 yuan per person.
Despite these concerns, Qiu Xiaohua believes that these issues do not pose a serious threat to the overall economic performance. He remains confident that China’s economy will continue to grow steadily and rapidly in 2006. This optimism stems from the sustained effectiveness of macroeconomic policies, low inflation, and the resulting favorable environment for economic development. Moreover, the strong drive for regional development and the powerful administrative support behind China’s growth model continue to fuel investment and production, ensuring continued high growth.
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