China's economic growth may face uncertainties in the coming
months. Whatever those uncertainties are, analysts agree the
economy will continue its rapid growth.
China's gross domestic product (GDP) increased 11.5 percent in
the first six months of the year, with investment, inflation and
lending maintaining strong growth.
Economic growth in the second half of 2006 was lower than the
first half, and therefore year-on-year growth in this year's second
half should be stronger, said Liang Hong, chief economist of
Goldman Sachs (Asia) in Hong Kong.
The country's GDP growth may reach 12.6 percent for the second
half, while the whole-year figure could be 12.3 percent, Liang
said.
The authorities' tightening measures have been slower and softer
than those in 2004, when China experienced a major economic
expansion, she said. "This has made the economy grow faster by
far," she told China Daily.
Economic growth will remain strong in the third quarter, Liang
said, but she is not sure the momentum will continue in the fourth
quarter, since the severity of expected tightening measures remains
unknown.
Liang said besides an interest rate hike, administrative
measures will become the major tools of policymakers.
Decisive monetary tightening may take place in the very near
term, and it will involve mostly administrative measures such as a
more aggressive liquidity withdrawal by the central bank (possibly
through larger or more frequent reserve requirement ratio hikes),
stepped-up moral suasion on commercial banks to curb lending, and
other administrative measures to curb investment demand, Liang
said.
It's been reported that the first batch of 600 billion yuan
special treasury bonds is to be issued this week as part of an
issuance plan that involves a total of 1.55 trillion yuan approved
by the national legislature in June. The authorities have not
confirmed reports.
Externally, China has a favorable environment for its economic
growth. The global economy is performing well, despite
interruptions from subprime problems arising in the US.
"Global growth continues to do well, and this is a partial
explanation as to why China's growth is so high," Bert Hofman, the
World Bank's leading economist in China, told China
Daily.
The central banks of some major economies have intervened to
head off a potential financial crisis triggered by the US subprime
mortgage lending woes. But the possibility of a widespread crisis
is slim, said Zhuang Jian of the Asian Development Bank (ADB) in
China.
The International Monetary Fund recently raised its world
economic growth forecast from 4.9 percent to 5.2 percent. It said
the Chinese economy may grow by 11.2 percent.
"The world economy is also expected to grow solidly next year,"
Zhuang told China Daily. "It will constitute a strong back-up for
demand for Chinese products."
China's GDP growth may hover around 11 percent, he said, as the
expected tightening measures will take some time to take
effect.
"I expect very harsh environment-related measures in the coming
months," Zhuang said, warning that if China fails to reach its
target on energy savings and pollutant emission this year, it will
be much harder for the country to meet its targets in the coming
three years.
China has set in its development plan for the 2006-10 period
that it should cut energy consumption per unit of GDP by 20 percent
by 2010, or 4 percent each year, and reduce release of major
pollutants by 10 percent by that time limit.
CPI challenge
Consumer price increases are another challenge, analysts
said.
China's consumer price index (CPI) hit 5.6 percent in July,
pushing the January-July figure to 3.5 percent, well above the
whole-year target set by the central bank.
"Such a high CPI reading would likely re-intensify speculation
about a potentially strong policy response," wrote Wang Qing from
Morgan Stanley Asia Pacific.
Statistics show that the rise has mainly come from food price
spikes.
"The authorities would need to keep a close eye on these
developments, and ensure that temporary food price increases do not
lead to more generalized inflation, or asset price rises turn into
a 'bubble'," Hofman from World Bank told China Daily.
Both Goldman Sachs' Liang and Morgan Stanley's Wang also believe
the authorities will not take tightening measures as harsh as in
2004 and the second half of 2006.
"We reaffirm our view that a policy-induced major economic
downturn in the second half of this year is highly unlikely."
Economists have agreed that another interest hike at least,
which would be the fourth this year, will come in the third
quarter.
While that will bring some benefits for those with bank
deposits, which offer lower-than-CPI interest rates, economists
said it won't slow the steaming economy.
(China Daily August 23, 2007)
