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| Report: China Must Focus on Consumption |
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China needs to shift focus from investment to consumption when promoting economic growth this year, so as to minimize the potential shock of emerging overcapacity, investment bank Lehman Brothers warned yesterday. "GDP (gross domestic product) growth looks unlikely to slow much in 2006, but its composition concerns us," the bank said yesterday in its global economic outlook for this year. It forecasts 9.3 percent economic growth for China this year. A major concern is the rapid growth in investment, which caused worries of overheating in sectors such as steel and cement in recent months. Lehman Brothers estimated that China's investment-to-GDP ratio continued to rise last year to 47 percent, extending a trend that has resulted in a significant build-up of production capacity in many sectors. "So far, production has stayed strong, but there are symptoms of oversupply: profit margins are being squeezed, and the trade surplus has ballooned, partly because of excess local supply being exported," it said. "There is an urgent need to rebalance GDP from investment to consumption, otherwise weaker foreign demand, or rising protectionism, could slow exports and bring China's oversupply to a head, forcing a major cutback in production." But while domestic demand took the lead over net exports in fuelling growth in the second half of last year, robust external demand this year should prevent too abrupt a deceleration in exports, the World Bank said last week. Strong external demand will come from major economies like the United States, Japan and European Union, which the World Bank said all have positive outlooks this year. China has put a strategic focus on boosting domestic demand for the next five years, trying to reduce the economy's reliance on foreign trade. And the consensus is consumption should play a bigger role in promoting economic growth, after a few years when investment growth, for a large part of the period faster than expected, was the major engine of growth. Lehman Brothers also said Asian countries, excluding Japan, are close to entering a new economic growth paradigm where domestic demand plays a pivotal role, moving away from an export-led development model. (China Daily February 16, 2006) |
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