The risks come from a projected fall in exports to the United States as consumer confidence plummeted following the September 11 terror attacks, and a slowdown in investment demand, it said.

"Relatively speaking, China is still the safe haven in the region thanks to a less trade-dependent economy." ABN Amro said.

China's low reliance on high-technology industries has insulated it from the fall-out of the slump in the world's electronics industry, even as the down-swing hammered its neighbours like Singapore and Malaysia.

Its gross domestic product (GDP) growth far exceeds the rest of Asia and domestic demand is still robust.

But China sells a lot of consumer goods such as toys, sporting goods and footwear to the United States and a fall in US consumer spending after the attacks on New York and Washigton is likely to affect these exports.

"It is worth noting that among the toys, sporting goods and footwear imported by the US, 60 percent are from China," the report said. The three items accounted for one fifth of the US's total imports from China.

"We expect China's exporters to be more seriously hit amid the slowdown of consumption demand in the US," it said.

Consumer spending accounts for two-thirds of US economic activity and has so far been the strongest pillar of growth.

ABN Amro said it has chopped its year 2002 export growth forecast for China from 15 percent to 3.5 percent.

China's projected GDP growth this year was also trimmed to 7.2 percent from 7.5 percent. In 2002, GDP is forecast at 7.0 percent, down from the original 8.5 percent.

Apart from the expected slowdown in external demand, initial signs of a slowdown in investment demand were also seen, the bank said.

Profit growth of industrial enterprises rose by 15.8 percent in the eight months to August this year, down from 86 percent in the same period last year.

"Weakening profit growth is not able to support another year of strong investment growth. Furthermore, facing a slowdown in the global economy, people are more cautious about business expansion, leading to a slowdown in investment demand," it said.

Meanwhile, Standard Chartered Bank said China has carried out reforms better than the rest of the region and this was the main reason why it has attracted the bulk of foreign investments into Asia.

"The argument that China has been gaining foreign investment at the expense of the rest of Asia is flawed," Standard Chartered said in a report.

"While China is likely to continue to get the bulk of foreign investment inflow, globalisation driven by comparative advantage means that foreign investment into Asia is a net sum gain," it said.

Standard Chartered compared both China and Japan which it said had similar economic problems and said that China "had so far pursued a better reform-growth policy mix than Japan and many other Asian countries."

For example, China has reformed its state-owned enterprises, which now produce less than 25 percent of total industrial output, down from more than 80 percent in the early 1980s.

And while the closure of the state-owned enterprises raised unemployment, the effort is bearing fruit as the number of loss-making firms is falling and corporate profits rising, it said.

(China Daily 10/08/2001)