Brisk exports, strong investment and buoyant consumption will
lift economic growth in China to 11.2 percent this year, up from an
earlier estimate of 10 percent, with the inflation rate breaking 4
percent, says an Asian Development Bank (ADB) report released here
on Monday.
"The faster than expected growth momentum built up this year is
expected to carry into 2008," Zhuang Jian, senior economist of
ADB's China Resident Mission, at a press conference in Beijing.
The new ADB report also forecasts that China's GDP growth in
2008 will reach 10.8 percent, an upward revision from the 9.8
percent projection in March when ADB launched the flagship annual
forecasting publication ADB 2007.
Zhuang said China's economy grew at a faster-than-expected 11.5
percent in the first half of 2007, which is the highest rate since
1994.
According to Zhuang, China's fast economic growth was led by
industry, especially in such sectors as steel, electricity,
chemicals, and oil processing.
Strong profitability, buoyant sales and still-low lending rates
also drove investment during the period.
The ADB report said investment administered by local governments
grew by 28.1 percent in the first six months, nearly doubling the
equivalent central government rate. It suggests the efforts made by
the central government to tighten local investment have not had
lasting effects.
China's inflation barometer, the Consumer Price Index (CPI), is
estimated to be 4.2 percent this year and 3.8 percent in 2008
against the previous forecasts of 1.8 percent and 2.2 percent,
respectively, according to the ADB report.
Zhuang said rising global grain prices and the outbreak of blue
ear pig disease led to sharply higher food prices, but this is
expected to ease next year, paving the way for the implementation
of planned reforms in the pricing of state-controlled sectors such
as water, power and natural gas.
The ADB report also forecasts that China's exports are forecast
to grow by 20 percent and imports by 16 percent in the second half
of 2007, resulting in a full-year trade surplus of around US$300
billion, up more than 60 percent from 2006.
China's exports rose by 27.6 percent in the first half,
exceeding imports growth of 18.2 percent, lifting the trade surplus
to US$112.5 billion.
Zhuang said the growth rate of some exports could slow in the
second half due to some macro-control policies. From June 1, an
export tariff was imposed on 142 products, while export tax rebates
were reduced or abolished in July for 2,831 items.
The aim is to rein back the growing trade surplus and at the
same time ease strains on the environment by reducing goods
production that requires high inputs of energy and natural
resources, and that causes high levels of pollution, said
Zhuang.
Persistently high trade surpluses and capital inflows have
further boosted foreign exchange reserves, complicating monetary
policy. The ADB report said China's current account surplus is
expected to swell to 10.9 percent of GDP this year and 10.5 percent
in 2008, revised up from the 8.8 percent and 8.9 percent projected
earlier this year.
The gap between export and import growth will probably narrow
slightly as the changes to export tariffs and export tax rebates
take effect, said Zhuang.
The ADB reports forecasts that China will face three major
challenges in the future economic growth.
One is the higher than expected inflation, which poses a risk to
the outlook. Zhuang said adverse weather would lower domestic grain
production at a time when imported grain prices are high.
The other challenge is that the excessive liquidity in the
financial system and relatively unattractive bank deposit rates
helped boost stock and property prices. Zhuang said a major
adjustment in stock prices could hurt bank balance sheets, and
faced with rising non-performing loan ratios, banks would likely
curtail lending with knock-on effects on the broader economy.
In addition, the key challenge for China is to reduce the
country's reliance on exports and investment for growth in favor of
private consumption.
"Such a switch could lessen vulnerability to external shocks and
ease environmental strains caused by the emphasis on export and
investment-led heavy industry." said Zhuang.
(Xinhua News Agency September 17, 2007)
