The Chinese mainland's trade surplus for 2005 could climb to a record high of US$100 billion. This could trigger more intensified trade rows with its major trading partners, said an economist.

Credit Suisse First Boston's (CSFB) Chief Economist Tao Dong made the remarks at an economic forecast meeting yesterday.

The mainland saw a US$40 billion trade surplus from January to June, based on the calculation of statistics provided by the Ministry of Commerce.

The skyrocketing exports growth of the mainland could result in an increasing number of trade spats with its trading partners and make it the target of more anti-dumping and safeguard measures, he said.

Looking at the issue of the US trade deficit against the mainland, however, Tao said: "The revaluation of yuan is not the remedy for mending the twin deficits of US accounts."

Overspending is the core problem of US trade deficits, Tao said, adding that the mainland and other Asian economies have been continuing to fund the borrowing of US consumers by relentlessly purchasing US treasury bonds, keeping the yield of treasury bonds and cost of borrowing low.

"The Bush administration should understand that the US trade deficit is the US's own problem and the revaluation of Chinese currency simply happens to be something created to ease domestic political pressure in the US," Tao said.

Forex reserve and GDP

The investment bank also estimated that the mainland's mounting foreign reserves would surpass US$1 trillion from the current US$659 billion by 2008 as a result of robust export growth.

From 2002 to 2004, the Chinese foreign reserves jumped by US$323.5 billion to US$609 billion.

The bank also raised its estimates on the GDP growth of the mainland for 2005 from 8.6 per cent to 8.9 per cent and for 2006, from 7.2 per cent to 8.1 per cent.

Shanghai property market

Striking a note of caution, Tao said that Shanghai's bullish-to-sluggish property market is emerging as a major risk for the mainland economy in the near future.

"The property market accounted for 13.5 per cent of the GDP growth in Shanghai in 2004. The percentage could amount to 25 per cent if we included its indirect contribution to the GDP," Tao noted.

"I would expect the Shanghai property market to drop by 30 per cent this year as transaction volume is beginning to fall as a sign of the adjustment period."

"With one of the key growth engines for Shanghai becoming muted, Shanghai may see single-digit growth in 2005 and 2006 or even less," Tao warned.

Hong Kong economy

Tao Dong also expressed optimism in the prospects for the Hong Kong economy.

The opening of Disneyland in September will boost the number of inbound tourists and the labour market, and local consumer confidence will improve further as well.

He suggested that Hong Kong's economy had peaked in the second quarter of 2004 and GDP growth in 2005 and 2006 would slow to 3.5 per cent and 3.4 per cent respectively, following 8.1 per cent growth in 2004.

However, the boosting effect of Disneyland to Hong Kong's economy will not be all that remarkable, contrary to what is widely anticipated, he said.

"The opening of the theme park will only create a few thousand low-skilled vacancies, but be unable to absorb the vast amount of low-skilled labour," Tao warned.

Moreover, some recent statistics show that neighbouring Shenzhen is witnessing substantial growth in its terminal throughput and is believed to overtake Hong Kong within a decade.

"Industrial workers in Hong Kong, such as truck drivers, are generally low-skilled and difficult to be re-trained to work in other industries," Tao noted. "The Hong Kong government should do more to preserve the competitiveness of Hong Kong terminals."

However, Associate Professor at the Department of Economics of Chinese University of Hong Kong Chong Tai-leung disagreed and suggested: "With the opening of Disneyland in September, unemployment will drop from the current 5.7 per cent to 5 per cent at the end of the year as other tourist-related industries, such as hotel, catering and retail, will all benefit from an influx of mainland tourists."

The working class may see a 3-5 per cent salary hike but the purchasing power could be eroded due to a 2-3 per cent inflation rate. And the recent rental hike suppressed the incentive for employers to offer more to employees.

(China Daily July 13, 2005)