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Different views on speed of China's economic growth
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Although it's conventional wisdom that China's economy will grow robustly this year, there are different opinions over how strongly it will expand and what policies the government may introduce.


China roared in with another strong economic performance last year when data released by the government last week showed that it expanded by 11.4 percent - the fifth straight year of double-digit growth. In monetary terms the nation's gross domestic product generated 24.66 trillion yuan (US$3.41 trillion) worth of goods and services, in line with most estimates by economists.


Last Friday, the Chinese Academy of Social Sciences said China's GDP growth may slow to 10.8 percent in 2008 from last year's 11.4 percent, the fastest pace since 1994.


The forecast by the government think-tank echoed those made by many others, which all agreed that China's pace of growth will moderate this year.


In an earlier report, the People's Bank of China, the central bank, expected the nation's GDP to jump by 10.9 percent this year.


The World Bank agreed with the CASS by going with a 10.8-percent gain while the Asian Development Bank predicted 10.5 percent.


Germany's Deutsche Bank estimated an economic growth of 10.4 percent, while Credit Suisse offered the lowest forecast polled by Shanghai Daily at 10 percent.


But the interesting point to note is that all the forecasts are in double digits, a reflection that economists are basically positive toward China's economy. Their confidence that the economy may come in for a "soft landing" takes root in the figures released last week.


"China's fourth-quarter GDP growth has moderated to 11.2 percent, confirming our view that the economy is moving toward a soft landing," said Tao Dong, chief regional economist at Credit Suisse.


China's GDP in the last three months of 2007 expanded at a slower pace of 11.2 percent, compared with 11.5 percent in the third quarter and 11.9 percent in the second quarter.


After pushing various tighter monetary policies, the Chinese government expects to cool the world's fastest growing economy, curb inflation and contain excess liquidity in the domestic market.


"We think this set of data is in general healthy, except for inflation," said Bank of America in a report. "December CPI inflation fell to 6.5 percent year on year from the peak in November of 6.9 percent. But given the base effect, it does not suggest a weakening of inflation pressure."


The consumer price index, the main gauge of inflation, hit 4.8 percent for the whole of last year, more than triple the 1.5-percent rate a year earlier.


Producer prices, the factory-gate inflation measurement, also rose to 5.4 percent in December from 4.6 percent in November.


Some of the major economic barometers remain worrisome and may indicate overheating but others, especially the figure for fixed asset investment, provide decision makers with a kind of relief.


In December, growth in urban FAI fell to 19.3 percent from November's 26.1 percent and October's 30.6 percent. It was the first time that the FAI figure has fallen below 20 percent since December 2006.


"A continued moderation in infrastructure investment was the main reason. This should provide some comfort for policy makers and is a good sign for a (economic) soft landing," said Tao Dong with Credit Suisse.


Despite these good signs, some economists are of the view that China should stick to a tight credit control policy to cement achievements already made.


Stephen Green, a senior economist with Standard Chartered Bank (China) Ltd, said he expects four more rises in bank interest rate by the Chinese central bank in the first half of this year, totaling some 100 basis points.


"For this loan slowdown to be sustainable, bank rates have to rise, especially on the deposit side - otherwise as soon as bank loan growth is relaxed we will simply see an explosion in loans, asset price inflation, and inefficient investment," said Green.


Bank of America also said China will likely continue macro tightening measures, in the form of credit control, tighter investment approvals, and a faster appreciation of the yuan.


But some other economists think the opposite may occur after taking the global economic performance into consideration.


"If China were to carry out austerity measures to rein in investment growth and contain inflationary pressure despite a recession in the US and the attendant global downturn, the Chinese economy may suffer a serious double-blow impact," said Wang Qing, Morgan Stanley's chief economist for China.


"The negative implications to the market would be broad-based: domestic demand-oriented and export-oriented sectors will be equally affected. It would likely result in a hard landing for the economy and its negative market impact would be serious."


Last Tuesday, the US Federal Reserve slashed its benchmark interest rate by 75 basis points to 3.5 percent.


"With disturbing signs coming from the rest of the world, we are inclined to believe that a subtle ease in credit restrictions by the end of the first quarter this year is likely," said Tao.


(Shanghai Daily January 28, 2008)


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