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China's Economic Growth Forecast Raised

Investment bank Goldman Sachs said yesterday that it had significantly raised its China economic growth forecasts for this year and 2004 "on the back of stronger-than-expected domestic demand".

It dismissed worries that the Chinese economy is overheating and that the central bank's recent tightening measures, including a hike in bank reserve requirements, may result in a slowdown.

"In our view, not only is China not overheating, but its growth trajectory is likely to be stronger and will sustain longer than most people expect in the near-to-medium term," Hong Liang, a China economist with the bank, said.

The bank upgraded the real gross domestic product growth forecast to 8.7 percent from 8.1 percent for this year, and raised the 2004 forecast to a hefty 9.5 percent from 8.4 percent.

"We believe China is still at an early stage of a new expansion cycle after an extended period of below-potential economic performance," the economist said.

The Chinese economy expanded by 8.5 percent in the first three quarters of this year. And Qiu Xiaohua, deputy director of the National Bureau of Statistics, said over the weekend that the full-year growth is likely to be around the same level, which is much higher than the official target of 7 percent.

The economic engine in China next year is likely to run on all three cylinders - consumption, investment and exports, the bank said.

Consumer demand in China has been recovering since the second quarter of 2002. "Going forward, we believe consumer demand will pick up more steam, supported by rising household income, particularly for rural households, expansion of consumer credit, and rising home ownership," Liang said.

The investment bank said the country's recent investment boom is supported by genuine improvement in corporate balance sheets and is in line with China's medium-term growth trajectory.

And the high base of 2002 which witnessed robust export growth is unlikely to stop China from continuing its strong export performance next year, it said. "Looking forward, we still see room for a 'positive surprise' from exports, as the world is finally up for a brighter outlook after two years of below-trend growth," Liang said.

Goldman Sachs saw little signs of cooling in money and credit growth despite worries that the People's Bank of China's tightening measures, mainly a stricter property loan policy and a 1-percentage-point increase in bank reserves announced in August, may lead to a shrinkage in money supply and derail the rapid economic growth.

"Actions speak louder than words," Liang said. "Faced with conflicting objectives, the People's Bank of China appears to be choosing to support growth over containing inflation."

The growth of base money, which largely includes cash in circulation and bank reserves, accelerated in the third quarter to 15.4 percent year on year from about 7 percent in the first and second quarters, the economist noted.

(China Daily November 18, 2003)

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