China Economy Should Expand 10.4%

August 16, 2006

China’s sizzling economy is slowing but should still expand by 10.4 percent this year, the World Bank said Tuesday, as newly released statistics suggested measures to prevent runaway growth might be taking effect.

The World Bank’s growth forecast, included in a quarterly report on China’s economy, was a sharp increase from its earlier projection of 9.5 percent. It came after the government reported that second-quarter growth hit 11.3 percent, the highest rate in a decade.

China’s exports for the year are expected to soar by 20.8 percent, while imports rise by 18.4 percent, the bank said. It said that should lead to a current account surplus — the broadest measure of trade — of $220 billion, up 36 percent from 2005.

“The economy is likely to slow down somewhat in the second half of 2006 … resulting in growth of 10.4 percent for the year as a whole,” the bank’s report said.

It said growth in 2007 should be a slower but a still-robust 9.3 percent.

China’s mounting trade surpluses have fueled tensions with Washington and others, while Beijing is trying to rein in a boom in construction and bank lending that it says could ignite a financial crisis.

China has resisted demands to sharply raise the value of its currency, the yuan, which could slow export growth by making Chinese goods more expensive. Critics say the yuan is kept artificially weak, giving Chinese exporters an unfair price advantage.

Planners have tried to encourage more domestic consumption by expanding public holidays to promote tourism and boosting home ownership in order to reduce China’s reliance on exports, but so far with little success.

Regulators have raised interest rates, tightened bank credit and imposed curbs on real estate investment in an effort to rein in what they say is excessive spending on factories and other assets.

Statistics released Tuesday suggested those measures might be taking effect.

The growth rate for China’s industrial output slowed in July to 16.7 percent compared with the year-earlier period, lower than the 19 percent expected by economists and below June’s 19.5 percent rate, the government said.

Also in July, foreign direct investment fell 5.5 percent from the same month of 2005 to $4.3 billion, the Commerce Ministry reported.

That brought total foreign investment for the first seven months of the year to $32.7 billion, down 1.2 percent from the same period of 2005, the ministry said.

The World Bank said the government might wait to see whether its controls can slow growth before deciding whether to impose new measures, though it cautioned that “financial risks remain, especially in real estate.”
“The authorities may decide to await further evidence of the effectiveness of recent measures before deploying more expenditure-reducing measures,” the bank’s report said.

Was this article valuable?

Here are more articles you may enjoy.