Mon, Mar 07, 2005 - Page 10 News List

China faces uphill battle in trying to cool down economy

RUNAWAY GROWTH Analysts dismissed Wen Jiabao's claim that the government could limit growth to 8 percent from last year's 9.5 percent

AFP , BEIJING

China's central government is facing a tough battle with the provinces to slow its overheating economy, with trillions of US dollars of investment projects already underway or in the pipeline, analysts said yesterday.

In his annual work report to the National People's Congress on Saturday, Premier Wen Jiabao (溫家寶) said the government would slow gross domestic product growth from 9.5 percent pace last year to "around 8.0 percent" this year, despite warning that it would be difficult to control runaway fixed-asset investment.

China badly missed its targeted growth rate of around 7.0 percent last year, leading some economists to place little importance on the government's annual exercise of forecasting growth.

"It really doesn't matter if it's 7 or 8 percent. Last year, it ended up at 9.5 percent, and everyone agrees that it was substantially underestimated," said Chen Xingdong (陳興動), the Beijing-based chief China economist with BNP Paribas Peregrine Securities.

Based on such data as energy consumption, Chen believes the real nominal growth rate last year was 18 or 19 percent, while calculating for inflation of up to 7 percent, real growth last year was more than 11 percent.

"Even if the government can't control the growth rate, it can control the statistical data to make sure the growth rate ends up at 7 or 8 percent," he said.

In an effort to cool the economy, China's economic planner Ma Kai (馬凱), head of the National Development and Reform Commission, Saturday announced growth targets in the broad money supply of 15 percent and a 16 percent growth target in fixed assets investment.

This is after fixed assets grew by nearly 27 percent in 2003 and 25.8 percent last year to 7.0 trillion yuan (US$845 billion).

"The driving force behind investment growth is strong, and investment demand could return to excessive levels," Ma admitted.

"The economic system is unsound, the economic structure is irrational and the pattern of economic growth is too crude," he said, in a frank admission of the problems the government was facing.

Andy Xie (謝國忠), chief Asian economist at Morgan Stanley, said the government clearly saw the need to slow the economy, but both Wen and Ma's reports lacked any concrete measures.

"Fixed asset investment growth of 16 percent will be very hard to implement because there is lots of liquidity in the banking sector and the provinces have about 25 trillion yuan in projects that have already been approved," Xie told reporters.

"This will be very hard to implement and it will depend on how the central government can persuade the local governments to slow down spending. There is a lot of resistance from the local governments to lower growth."

Meanwhile, Wen pledged to cap export growth at 15 percent.

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