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ADB Raises China Growth Forecast to 9.2%

Surging net exports, strong investment, and accelerating consumption are expected to propel economic growth in China to 9.2 percent this year, outpacing an earlier forecast of 8.5 percent.


According to the Asian Development Bank's (ADB's) Asian Development Outlook 2005 Update (Update) released Thursday, China's economy showed little sign of the anticipated growth slowdown in the first half of 2005.


The Update forecasts GDP growth of just below 9 percent for 2006, largely in line with the ADB 2005 growth projections.


"It is expected that high economic growth will be supported by rising incomes and consumption, though the deceleration of investment and net exports expected from the second half of 2005 is likely to bring GDP growth down a little from the peak levels of recent years," the Update says.


Consumer price inflation, which hit an eight-year high of 5.3 percent in July and August 2004, slowed to 2.3 percent in the first half of 2005, resulting in a reduction in the full-year inflation forecast to below 3 percent from 3.6 percent.


Inflation is likely to stay below 3 percent in 2006, as excess capacity in manufacturing and an expected increase in grain production will likely diminish upward pressure from higher production costs, including rises in wages, benefits and international oil prices, according to the report.


Downside risks to the growth outlook are energy concerns, weaknesses in the banking system, over-capacity in some industries, and the possibility that rural incomes will come under pressure.


China is now the second-biggest oil consumer and one of the largest oil importers in the world. The PRC's demand for oil is driven partly by the rising number of private vehicles, inefficient use of oil, and price controls in the domestic oil market, the report says.


China may face increasing energy bottlenecks in the future unless pricing becomes more responsive to market requirements, and energy conservation and efficiency are encouraged, the Update warns.


On other potential risks to the outlook, the report says state-owned commercial banks need to improve services and strengthen capital structures and management to withstand foreign competition.


It says overcapacity in some industries has resulted from heavy investment. If this is not reined in sufficiently, deflationary pressures could develop that seriously weaken producers' profitability and balance sheets, causing further problems for lenders and for growth in general.


(Xinhua News Agency September 8, 2005)


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