The Asian Development Bank (ADB) annual economic forecast,
released Wednesday, indicates that the world’s sixth-largest
economy will continue to grow rapidly this year but at a slower,
8.3-percent pace. In 2005 growth is likely to slow further, to 8.2
percent.
China's growth this year will account for 15 percent of the
expected expansion in the world economy, even though the country
accounts for only about 4 percent of the global gross domestic
product (GDP), the ADB said.
China's GDP last year jumped 9.1 percent and soared nother 9.7
percent in this year's first quarter. The government has set its
growth target at 7 percent for this year.
Consumption will accelerate slightly, to about 9 percent, in
2004 and 2005, underpinned by rapid nationwide urbanization and
improving consumer confidence, predicts the ADB.
Investment growth will likely be cut nearly in half, to around
16 percent, in the same period as the government tightens credit in
several sectors, including real estate, ferrous metals, aluminum
and automobiles. The ADB forecasts that the higher housing costs
resulting from a lending crunch will dampen real estate investment,
while foreign direct investment inflows will grow moderately.
The government will gradually phase out its expansionary fiscal
policy and slow investment in government-sponsored projects, the
bank said.
"FDI will enhance the productivity of immobile factors of
production," said Zhuang Jian, an ADB economist. "The benefits are
especially important in connecting China's economy to the global
economy, and in the area of technology transfer."
Two factors determine whether a country will attract FDI: the
commercial profit potential of targeted investment projects and a
politically stable environment, Zhuang said. In China's case, as
profit margins in some overheating sectors decline and economic
growth slows, the average returns on FDI will dwindle.
To attract more FDI, the government must make investment rules
and regulations more transparent, Zhuang advised.
"The government should also clearly identify the agencies that
are responsible for issuing licenses, permits and approvals."
Investment was the main driving force behind China's soaring GDP
growth last year, according to the ADB. Investment contributed 6.3
percentage points to growth, while consumption contributed just 3.9
and net exports subtracted 1.1 percentage points from the
total.
Fixed-asset investment leapt 26.7 percent in 2003, while public
sector investment surged 28.2 percent.
Signs of economic overheating include the high rate of
investment growth as well as the rising prices of raw materials and
shortages in some sectors, the ADB reported.
Power consumption increased rapidly last year, with 21 out of 31
provinces experiencing blackouts.
The bank predicts that the rise in the consumer price index will
likely accelerate moderately, to 2.7 to 3.0 percent in 2004 and
2005. The current grain price increase will continue until later
this year, while costs for energy and raw materials will rise.
The (PBOC), the nation's central bank, might raise the
benchmark interest rate if inflation continues to soar, said Bruce
Murray, the ADB's resident representative.
China experienced serious inflation a decade ago, but that ended
when the Asian Financial Crisis began in 1997. The inflation rate
in 1993 and 1994 soared to around 25 percent.
China's local governments are partly responsible for the
country's ongoing investment fever, Murray said. While the central
government must take the blame if the economy turns sour, local
governments only care about job creation and regional GDP growth.
As a result, a higher interest rate might not dampen local
governments' investment enthusiasm.
The government might also be considering using administrative
power to help eliminate excess investment, according to the ADB
economists, but they suggested that it should better coordinate
fiscal policy with monetary policy to achieve that goal.
A soft landing of the red-hot economy is badly needed, they
added.
(People's Daily May 8, 2004)