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Chinese slowdown will impact many

China's moves to slow down its runaway economy may head off a hard landing, but such clampdown measures would inevitably bring pain to not only to Asia but countries worldwide, Standard & Poor's Ratings Services said yesterday in a report.

Ping Chew (周彬), S&P's director of Emerging Asia Sovereign and International Public Finance, said the challenges currently facing China, while still formidable, are more manageable than those of the 1990s.

"The [Chinese] government has been active since the middle of last year in stabilizing capital inflows, halting appreciation of the domestic currency, tightening the monetary environment and limiting projects in selected industries," Chew said.

The economy is in the hands of officials who are more aware of the challenges facing them and of the consequences of their actions than their predecessors who dealt with the threats of a bubble economy in the early 1990s, he said.

China's economic expansion will be slowed to between 7 percent and 8 percent this year from over 9 percent last year, S&P said.

However, any slowdown in China's highflying economy would inevitably bring pain to its Asian neighbors, including Taiwan.

China's clampdown measures would impact China-based Tai-wanese businesses as well as Taiwan's cross-strait exports, said Wu Chung-su (吳中書), a research fellow at Academia Sinica.

The rise in land rent and electricity prices as well as the tighter controls over electricity usage and capital lending would all increase production costs for China-based Taiwanese companies, Wu said.

Exports from Taiwan to fulfil China's domestic market are expected to feel the greatest impact, due to a potential decline in domestic demand, while those to be processed in China and then exported to the European and American countries would be less affected, Wu added.

China is currently the largest destination of the nation's exports and investment, accounting for US$19.76 worth of exports, or 36.7 percent of total exports, in the first four months this year, the Ministry of Finance reported last week.

China-bound investment hit US$1.29 billion in the first three months this year, over twice as much as the US$624 million outbound investment to other countries, the Ministry of Economic Affairs' Investment Commission said last month.

But China's move to rein in its overheating economy may actually offer a chance for Taiwanese companies to rethink their investment plans and business layouts, said Taipei-based Taiwan Thinktank chairman Chen Po-chih (陳博志).

"Taiwanese companies that have been overly bullish about and overly dependent upon China should adjust their expectations about China's economic development and slow down their plans to move from Taiwan," Chen said.

The Directorate General of Budget, Accounting and Statistics yesterday revised upward its economic forecast for the nation to 5.41 percent this year from 4.7 percent it predicted in February.

Lehman Brothers Inc, which is not as optimistic as S&P, predicted earlier this week that there was a risk of hard landing for China's economy.

It cited China's debt-financed investment booms, a lack of clear information about the borrowing by local authorities and industry as well as the lack of experience regarding transition-economy China's reaction to the central government's persuasion.

As a result, Lehman lowered its projection for Taiwan's economy for this year to 5.5 percent from its previous 6 percent forecast.

Wu, however, said that Taiwan's economic growth in the second half of this year could be repressed due to China's clampdown plans, oil price hikes and expected rises in interest rates.

Academia Sinica's growth rate forecast for Taiwan is expected to be revise upward in the middle of the year from the conservative 4.35 percent estimate it made last year.

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