The Chinese economy will not escape a global economic slowdown, even more so if such torpor is caused by the US economy, warned a UN report yesterday.

 

According to the UN World Economic Situation and Prospects 2007, released yesterday, China should see a robust growth of 9 percent in 2007, only a slight moderation from the 10.5 percent growth rate estimated for 2006.

 

China's exports have grown at over 20 percent annually since its accession to the WTO five years ago. Should this trend continue, China will become the largest exporting economy in the world by 2009.

 

However, this spectacular export growth rests mainly on further processing of imported intermediate goods, the UN report noted. Around 60 percent of China's exports can be categorized as such "processing trade" with slim value-added margins.

 

As the US is a key export target for China, this trade structure symbolizes how the Chinese economy leaves itself open in case of a US-led global slowdown.

 

The report also considered a more pessimistic scenario, however, under which house prices in the US could nose-dive, dragging US economic growth to below 1 percent in 2007.

 

Should this happen, then economic growth in China would plummet to a much lower 5 percent in 2007, it added.     

 

Revalue the RMB

 

During 2006, China's current account surplus increased to near US$200 billion. Continued export surpluses have allowed China to accumulate substantial amounts of official foreign-exchange reserves, which have reached now over US$1 trillion, the highest in the world.

 

China's large external surplus has led to increased international pressure from countries with current account deficits, especially the US, demanding China revalue its currency, the renminbi, and also has given rise to protectionist actions against Chinese exports.

 

A more flexible exchange-rate policy could come as part of a concerted package, but which from the Chinese perspective should be aligned with ongoing reforms to strengthen its financial system, recommended the world body in the report.

 

The value of renminbi against US dollar hit a new high today, with the central parity rate at 7.7977 yuan to one dollar, breaking the 7.80 mark for the first time.

 

On domestic aspects of the Chinese economy, the UN report pointed out China has not succeeded in solving its unemployment problems and that creating more jobs remains a key policy challenge for the Chinese economy. 

 

(Xinhua News Agency January 11, 2007)