China can sustain 8% growth for next decade
(Agencies)
Updated: 2005-05-31 16:28

China is not in danger of overheating and will be able to sustain growth of 8 percent a year for the next decade, a leading economist said on Tuesday.

Yu Yongding, director of the Institute of World Economics and Politics of the Chinese Academy of Social Sciences, speaks at a forum in this December 12, 2003 file photo. Yu said in Seoul May 31 that China is able to sustain an economic growth of 8% for the next decade.

Growth has averaged more than 9 percent a year since China started reforming its economy along market lines in the late 1970s and has averaged 8.4 percent in the past five years.

"It is hard to say the Chinese economy is overheated across the board," Yu Yongding, who heads the Chinese Academy of Social Sciences' Institute of World Economics and Politics, told a seminar in Seoul.

China's economy looked as though it might boil over a year ago because of excessive investment in sectors such as property, steel and cement.

The government responded by curbing bank lending, tightening land-use rules and raising interest rates to slow growth. Slowly but surely, the measures are working, most economists believe.

Weakening investment and industrial output will slow growth to 9.1 percent in the year through the second quarter, according to a report by the State Information Center (SIC), a top government think-tank.

First-quarter gross domestic product was 9.4 percent higher than a year earlier. In 2004, GDP expanded 9.5 percent.

The China Securities Journal on Tuesday quoted the SIC as forecasting growth in fixed-asset investment would be 20 percent in the year through the April-June quarter.

The report did not specify whether the think-tank was referring to overall fixed-asset investment, which was up 22.8 percent in the year through the first quarter, or to urban investment, which was up 25.3 percent.

Shanghai's stock exchange is picture in this undated file photo. China's booming economy is expected to grow by 9.1 percent year-on-year in the second quarter, a report has cited figures from government think-tank the State Information Center as showing. [AFP]

"The momentum for industrial production to continue to expand is weakening, and will for certain fall from high levels," the newspaper quoted the think-tank as saying in its latest report.

It gave no forecast for industrial production, which rose 16 percent in the 12 months through April and was 16.2 percent higher than year-earlier levels in the first four months of 2005.

YUAN WAIT TILL 2007?

Yu, also a member of the central bank policy committee, made no mention of the yuan, which has been pegged near 8.3 per dollar for a decade.

Financial markets have been speculating feverishly that a move to unshackle the currency is imminent, not least because of growing pressure from Washington to let it float higher.

But Fitch Ratings agency said on Tuesday it did not expect Beijing to tamper with the yuan until 2007 because the government's priority was to maximise export-led growth.

"It's our view that there's really not going to be any exchange rate change in China even next year," James McCormack, a senior director at Fitch, told Reuters in Seoul.

A slowdown in investment would be welcome to Chinese policy makers, who are targeting full-year growth of 16 percent in overall fixed-asset investment.

Growth in urban investment, which covers everything from motorways to steel mills, has slowed from giddy rates of more than 50 percent in early 2004.

The SIC's forecast of a modest slowdown chimes with a Reuters poll of economists earlier this month that pointed to GDP growth this year of 8.8 percent.

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