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WB: China's economy to grow by 9% in 2005
www.chinaview.cn 2005-08-16 19:14:58

    BEIJING, Aug. 16 (Xinhuanet) -- The World Bank said Tuesday China's economy is expected to grow by 9 percent in 2005, and about 8 percent in 2006.

    In its quarterly update on the country's economy, the China mission of the World Bank said the economic outlook for China "remains good" in a stable macroeconomic environment and with favorable financial conditions.

    "We now project (China's) GDP (gross domestic product) growth of 9 percent in 2005, and about 8 percent in 2006," the bank said in the report released in Beijing Tuesday.

    The bank based the projection partly on global economic factors, saying the growth in world economic activity and trade is projected to slow during the rest of 2005.

    "World trade growth is now expected to slow from 12 percent in 2004 to 6.4 percent in 2005, which is likely to affect China's export growth."

    China's exports will also be affected "somewhat by the modest revaluation of the RMB (the Chinese currency)" and the recent measures designed to discourage exports of "highly energy intensive products" including the cancellation of rebates to exporters of VAT (value-added tax) on aluminum and steel, the bank says.

    "Domestically, investment growth is expected to ease, reflecting the moderation in credit growth since the first half of 2004 and the more recent reduction in profitability and profit growth."

    Price pressures are projected to ease. International raw material prices are generally easing, with the important exception of oil (energy) prices, according to the report.

    Based on past patterns and the World Bank's international commodity price projections, increases in China's raw materials prices are expected to decline from 9.6 percent year-on-year in the second quarter to 7.3 percent in the fourth.

    In addition, continued rapid productivity increases in China's manufacturing industry put downward pressure on prices, the report says, adding that the recent revaluation of the Chinese currency will help ease imported inflationary pressures somewhat.

    According to the bank, China's domestic demand is slowing down.GDP growth remains high due to a large contribution of external trade as exports continued to power ahead while imports decelerated significantly.

    "Net of external demand, the GDP numbers suggest that a slowdown in domestic demand is under way."

    "Slower credit and profit growth, lower FDI (foreign direct investment) and modest growth in machinery and equipment imports are pointing to a further slowdown in investment to a more sustainable pace in the period ahead."

    The change in the exchange rate system and the accompanying revaluation may further slow domestic demand, but the impact on the trade balance is likely to be limited, the report says.

    The bank suggests China's macroeconomic policy makers should remain alert to the possibility that risks materialize, for now the focus could be more on the structural issue of rebalancing growth.

    The rebalancing would be away from the relatively volatile export and investment-based growth to more stable consumption-based growth, it says.

    "Measures in social security and shifting government spending away from investment towards health, education, and social safety could help increase consumption's share in GDP, policies that would also help in redressing the surpluses on the current account."

    To maintain growth and employment creation as consumption increases, however, more efficient investment as well as a shift of investment to services is needed, it says.

    "Financial sector reforms, better corporate governance, and a dividend policy for state enterprises could be measures towards that goal." Enditem

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