A chief economist from the National Bureau of Statistics told a three-day forum in Beijing on December 11 that despite maintained rapid development China's economy still has three problems that need great attention.

Yao Jingyuan, speaking at the 3rd Session of China's Competitiveness Forum, said low quality exports, increased costs for heavy industry and the risk of deflation or inflation have to be dealt with.

Between January and September, China's balance of trade reached US$68.3 billion in its favor, and is projected to be US$100 billion at the end of the year compared with US$32 billion in 2004.

If this growth increases too dramatically, Yao said trade conflicts can be expected to escalate, as will pressure to revalue the RMB.

Average annual clothes exports number about 17 billion but their average unit price is only US$3.50.

Yao said innovation and competitiveness among producers should be encouraged to improve the quality of goods, instead of relying on only increasing quantity.

Compared with 39.8 percent in 2004, growth in heavy industry profits was only 20.1 percent from January to September, while costs went up 57 percent.

The government should pay great attention to this, said Yao, as costs were rising too fast and profit growth mainly came from coal, oil and nonferrous metals.

Yao also emphasized that growth was not due to technological innovation or improvements, but from rising prices that cannot be sustained.

Oversupply of energy and materials reduces profits and over construction will cause increased industrial surplus, said Yao.

From January to October, the price index increased 1.9 percent and is expected to remain under 2 percent at the end of 2005, lower than the figure of 3 percent predicted by many experts at the beginning of the year.

Yao said the risk of deflation due to surpluses of some products is high, though increased investment in production has been central to much of the country's economic growth in the past.

Yao also warned against inflation in the service sector since, though the government still controls service industry prices, it will be under pressure to close the gap between them and international prices.

(China.org.cn by Wang Ke, December 15, 2005)