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China's economy grows 8.5% in 2003

Impoverished Chinese peasants rush into a burning rubbish dump where counterfeit goods are being destroyed looking for anything valuable in Yunnan Province, China, on Monday. PHOTO: EPA

China's economy grew 8.5 percent last year, its fastest pace in six years, as companies such as PSA Peugeot Citroen and Huawei Technologies Co expanded factories to meet rising consumer demand and surging overseas orders.

GDP had its biggest annual gain since 1997, after the world's sixth-largest economy grew 8 percent in 2002, Xie Xuren, commissioner of the State Administration of Taxation, told a press conference in Beijing. Fixed-asset investment, about a third of China's economy, grew by about 35 percent and industrial production rose 17 percent, Xie said.

Booming investment and production are helping China grow fastest among the 10 biggest economies. They're also raising concern about gluts forming that may force companies to discount.

Standard & Poor's last month said markets including autos, consumer goods and property are at risk of oversupply.

"With economic growth at the pace it has been the last two to three years, there is a certain nervousness whether the economy is overheating," said Ian Strickland, managing director of B&Q China, a home-improvement retailer with 15 stores in China. The company, a unit of London-based Kingfisher Plc, has invested US$300 million in China in the past four years.

"Massive production capacity has created some worries," Standard & Poor's credit analyst Maria Bissinger said last week in Frankfurt. "Profitability will drop over the next five to eight years on pressure from competition."

At the same time as prices of cars, fridges and computers are falling, manufacturers' costs are rising as demand for raw materials increases. The cost of iron ore jumped 36 percent in November and prices of steel construction wire rose 24 percent, the statistics bureau said last month. Autos were 4.6 percent cheaper and home-appliance costs fell 2.3 percent.

The state has already tightened rules governing lending to property developers and aluminum makers to curb investment, and in September raised banks' reserve requirements to help damp loan growth. M2, the broadest measure of China's money supply, grew faster than the central bank's 18 percent targeted rate every month this year.

"To keep inflation under check, the central bank will need to maintain a tightening bias throughout 2004," Jun Ma, an economist at Deutsche Bank in Hong Kong, said in a research note. "Against the backdrop of a modest monetary tightening we forecast real GDP growth of 8.4 percent in 2004."

Hong Liang, an economist at Goldman Sachs Inc forecasts growth will accelerate to 9.5 percent this year.

"China is still in the early stages of a recovery and just entered a new economic expansion cycle," she said. "The government won't suddenly apply the brakes."

Huawei, China's biggest phone-equipment maker, said Thursday sales rose 40 percent to a record 31 billion yuan (US$3.7 billion) last year as exports jumped 82 percent to more than US$1 billion. The Shenzhen-based company, whose customers include Telefonica SA of Spain and Singapore Telecommunications Ltd, aims to double exports this year to meet its US$5 billion sales target.
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