Morgan Stanley chief economist Stephen Roach said in a recent report that China's story is a structural one, driven by powerful internal reforms and external globalization forces. So far, it stands alone in being able to avoid the heightened cyclical vulnerability of a US-centric world.

In a tough external climate, the lack of a consumer cushion usually spells trouble. The Morgan Stanley economist pointed out that the Chinese growth dynamic is being powered by three other sources, namely export growth, growth of infrastructure spending, and growth of foreign direct investment.

The astonishing vigor of export growth is at the top of the list surging by 25 percent in the year ending this past August following an anemic 6.8 percent increase in 2001, he said.

Moreover, Roach noted that continued rapid growth of infrastructure spending has boosted fixed investment by 24 percent so far this year. And foreign direct investment hit nearly 35 billion US dollars in the first eight months of this year, putting China on track to break the 47 billion US dollars record of 2001.

As a result of this powerful combination, Chinese industrial output growth is currently running at nearly a 13 percent clip, a marked acceleration from average gains of 10.6 percent over the 2000-2001 interval. Notwithstanding the trials and tribulations of a sputtering global economy, there is no growth problem in China today, Roach said.

At the same time, China has been unwavering in its commitments to reforms. The restructuring of State-owned enterprises is unstoppable, and new market-opening reforms continue to be put in place after China's accession to the World Trade Organization, the economist stressed.

According to Jonathan Anderson, an analyst for Goldman Sachs Global Economic Research, since the beginning of the year, China's mainland and Hong Kong have been the fastest-growing export destinations for the rest of Asia.

On the other hand, Anderson said, in the last few months, China's imports for domestic use are now growing at an annualized rate of more than 20 percent, an indication of rising demand growth at home.

Goldman Sachs forecast China will see its GDP growth in the fourth quarter this year moderating slightly at 7.5 percent on the back of easing exports and slowing fixed investment growth. "We fine-tune our GDP forecast of China to 7.8 percent for 2002, up from our previous forecast of 7.5 percent," Anderson said.

Commenting on China's monetary policy, both Anderson and Roach said that they have noticed the latest developments in China's banking reforms.

Roach said there has, in fact, been a flurry of such activities in recent days. China's Securities Regulatory Commission has just signaled its willingness to allow private and foreign investors to take controlling stakes in domestically listed companies, he commented.

The US-based Newbridge Capital's recent purchase of a controlling interest in Shenzhen Development Bank, an institution with 191 domestic branches and assets of about 16 billion US dollars, is but a hint of what could now lie ahead on this front, Roach said.

Anderson called the purchase as "new landmark transaction" in capital markets, for it is the first foreign acquisition of State-held shares in a listed company since the announcement earlier this year that China would open the market to foreign stakes.

Both the economists believed that these are both important steps on the path to China's transition to a market-based economy.

( October 22, 2002)