Soft landing in 2005: Asian Development Bank
BEIJING - China will succeed in cooling off its overheated economy and achieve a soft landing, according to a major Asian Development Bank (ADB) report. The economy is expected to grow by 8.8% in 2004 and slow to 8% in 2005, it said.
The Asian Development Outlook 2004 Update (ADO Update), which forecasts economic trends in the region, says that the Chinese government should continue its macro-economic tightening measures and, in an attempt to avoid a hard landing for the economy, encourage investment and growth in lagging sectors like agriculture, small and medium enterprises, the private sector, health and education.
"The rapid pace of investment growth has slowed from the very high levels experienced in the first quarter, reflecting the gradual impact of the policy tightening measures," the report says. "However, the large amount of construction in progress means that growth in investment will remain high at 25% this year and 21% in 2005. In the longer term, such high levels of investment cannot be relied on to drive economic growth." Inflation is expected to moderate from the slightly over 5% experienced in mid 2004.
Consumption is expected to increase by 13% in 2005, supported by higher urban and rural incomes. Exports are forecast to rise by 22% in 2004 and 16% in 2005, based on expectations that the world economy will achieve higher growth in 2004 than in 2003 and moderate growth in 2005, and that China will remain the leading destination for global foreign direct investment. Imports will grow faster than exports. China's rapidly growing markets are providing opportunities for other countries, particularly Asian countries, the report said.
Higher global oil prices have introduced new uncertainties for economic prospects for 2004 and 2005. The bank report predicts that if oil prices remain at around $40 a barrel from the second quarter of 2004 through the fourth quarter of 2005, gross demostic product (GDP) in 2005 will be 0.8 percentage points lower than forecast, the trade balance as a share of GDP will be 0.1 percentage point lower, and the consumer's price Index will be 0.5 percentage points higher.
"The PRC's demand for oil grew by 9% in 2003 to about 270 million tons, or double the 1992 level. Net oil imports in 2003, at 91 million tons, were more than twice the 1998 level," the report says.
"With continued economic growth and a rapidly growing number of motor vehicles, the demand for oil will continue to increase," the report says. "At the same time, production from the nation's aging oil fields will decline. Some observers estimate that oil consumption could reach 600 million tons by 2020, with 400 million tons imported." China is a very energy-intensive economy, using over three quarters of a barrel of oil per $1,000 of GDP, about double the average for other Asian countries. Increased efforts are needed in the areas of energy efficiency and energy conservation.
Growth for the first half of 2004 was 9.7%. On the supply side, the industry sector, including construction, grew by 11.9% in the first six months. Agricultural production expanded by 4.9%, after a good summer grain harvest. The services sector grew by 8%.
"A surge in fixed asset investment and concerns about overheating in some subsectors prompted the government to resort to a combination of monetary, fiscal and administrative measures for damping the economy in September 2003. Excessive investment was most evident in the aluminum, automobile, cement, real estate, and steel subsectors", the Asian Development Bank report says.
"Symptoms of overheating included steep price increases for raw materials and severe bottlenecks in power and transportation," it says. "For example, in the first half of 2004, 24 out of 31 provinces experienced power blackouts, while the railway system was unable to move all of the freight on time."
The report notes that China has already achieved the Millennium Development Goal (MDG) of reducing by half the number of people living on $1 a day, and has made progress in achieving most of the non-income MDGs, including providing access to basic education and reducing maternal mortality.
"More progress is needed to achieve the MDGs related to gender issues, HIV/AIDS, safe drinking water in rural areas, child mortality and environmental damage," the report says.
(Asia Pulse) atimes.com |
