The World Bank said Tuesday China's economy is expected to grow
10.4 percent this year and 9.3 percent in 2007.
Although China's gross domestic product expanded by 10.9 percent
in the first half of the year, implying second quarter growth of
11.3 percent, a pace not seen since 1996, the outlook for the
country's economy remains "favorable", prompting no need for
overheating worries, the bank said in a quarterly report released
in Beijing.
With production capacity continuing to expand in line with
demand, inflation low and the current account in surplus, the main
policy concern is not general overheating for now. In the long
term, however, the continued investment boom warrants concerns
about efficiency and makes more moderate growth desirable,
explained the report.
The Bank has projected a mild slowdown in exports and fixed
assets investment for the second half, which would imply a slight
fall in GDP growth to under 10 percent at the end of the year,
resulting in growth of 10.4 percent for the year as a whole.
Bert Hofman, the bank's Lead Economist for China, stressed that
the country's investment has been increasingly driven by firm's
profits and profitability rather than administrative agendas.
For instance, sectors like transport equipment, ordinary
machinery, and the textile industry which were identified by
China's National Development and Reform Commission as having seen
particularly rapid fixed assets investment growth, saw particularly
high profit growth.
The only exceptions, he said, were large sectors outside of core
manufacturing where government policies including on pricing have a
large influence.
Another noticeable point is that investment growth tended to be
higher in sectors dominated by the private sector. The importance
of state-owned enterprises in industrial sectors, in contrast,
seems to have displayed a negative relationship with fixed assets
investment growth, said the report.
The bank also attributed the strong fixed assets investment to
local government behavior, saying local rather than central
governments have more clouts in most economic decisions. From
January to June, between 10 and 20 percent of investment was
carried out by local governments, it said.
The main incentives for local governments include the criteria
of government officials' performance, which are largely economic
criteria including GDP growth and foreign direct investment, the
importance for local government finances of revenues from land
sales related to investment projects as well as value added
taxation revenues on the production of goods.
The other positive signs of China's economy include the solidly
expanding consumption driven by rising income and a more
diversified trade structure, according to the report.
While China's trade surplus continued to surge, the export
structure was also upgraded rapidly. The share of processing
exports in total exports dropped from 54.7 percent last year to 51
percent in the first six months of this year.
"If this trend continues, external trade will benefit China not
only by creating jobs, but also by generating more added value and
profits," said the report.
(Xinhua News Agency August 15, 2006)