China: ADB forecasts slide in growth toward 7.5pc

[Stephen E Philion <philion@xxxxxxxxxx>]

South China Morning Post

Wednesday, November 22, 2000

ECONOMY

China: ADB forecasts slide in growth toward 7.5pc

MARK O'NEILL in Beijing

The growth of China's economy will slow from 8 per cent this year to 7.5
per cent next, according to the Asian Development Bank (ADB), which
also says the government should act to help the urban unemployed.

Tang Min, chief economist of the ADB's Beijing representative office,
yesterday said the economy this year had performed better than expected,
with the growth in retail sales rising for the first time in five years and
private investments in fixed assets exceeding those by state companies. In
October, the bank forecast gross domestic product would grow 7.8 per
cent this year.

In its latest review of China, the ADB maintained its forecast of 7.5 per
cent growth in 2001 and predicted annual growth of 7 per cent to 7.5 per
cent over 2001-2003. Last year, GDP grew a year-on-year 7.1 per cent.
This year, Beijing has set a target of more than 7 per cent. In the first
three quarters, the Chinese economy grew 8.2 per cent year on year.

Other positive factors were seven cuts in interest rates, three large stimulus
packages by the government, measures to promote the private sector and
export growth of more than 30 per cent thanks to a strong world economy
and a recovery in Asia.

On the negative side, grain output fell by 8 to 9 per cent, so that farmers'
income rose only 1.3 per cent in the first three quarters compared to 8 per
cent for urban residents. There was also a drop in foreign direct
investment.

In addition, China is still suffering from deflation, if the sharp rise in oil
prices and increases in service costs are excluded.

Next year, growth will slow, the ADB says, but the rate will still be one of
the highest in the world. There will be a slower rise in exports because of a
weaker global economy and a less expansionary fiscal policy, but there
will be a surplus on the current account.

The risks for China include its heavy reliance on world markets, the
highest of any major country. Exports account for 20 per cent of GDP,
against 7 per cent for the United States, 9 per cent for Japan and 8 per cent
for India, making it vulnerable to a possible hard landing of the US
economy and turbulence caused by fluctuations in the world oil price.

China's budget deficit is also a risk. According to the IMF, it accounts for
8 per cent of GDP, more than double the official 3.6 per cent, if bad loans
of the four major state banks and the shortfall of pensions and other social
welfare payments are included.

The government must also address the issue of urban unemployment. The
government should improve the social security system, encourage the
development of small and medium-size firms and of small cities, the ADB
said.

Separately, the Paris-based Organisation for Economic Co-operation and
Development predicted improved private consumption would help ensure
China's growth remained in the 7.5-8 per cent range for the next two
years.