Mon, Oct 08, 2001 page17

• ABN Amro says China set to grow

  ECONOMY Despite hard times in the Asia-Pacific region and the US, the Holland-based financial institution believes that the Middle Kingdom is set to continue to realize solid growth for the near term

  • AFP
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  China is Asia's safe haven for investors as its smaller neighbors succumb to the US-led global economic slowdown, but domestic risks remain, Holland-based bank ABN Amro said in a report.

  The risks come from a projected fall in exports to the US as consumer confidence plummeted following the Sept. 11 terror attacks, and a slowdown in investment demand, it said.

  "Relatively speaking, China is still the safe haven in the region thanks to a less trade-dependent economy. However, investors should not ignore the risk within," ABN Amro said.

  

  A vendor sells cheap flags and whistles outside a stadium in Shenyang where China faced Oman in a World Cup qualifier yesterday. Some analysts believe that China will remain relatively unaffected by the global economic downturn because it still produces primarily low-end consumer products rather than high-end computers and electronics items.

  PHOTO: AFP

  China's low reliance on high-technology industries has insulated it from the fall-out of the slump in the world's electronics industry, even as the down-swing hammered its neighbors such as Singapore, Taiwan and Malaysia.

  Its GDP growth far exceeds the rest of Asia and domestic demand is still robust, although many anlalysts question the reliability of statistics pumped out by Beijing.

  But China sells a lot of consumer goods such as toys, sporting goods and footwear to the US and a fall in US consumer spending after the attacks on New York and Washigton is likely to affect these exports.

  "It is worth noting that among the toys, sporting goods and footwear imported by the US, 60 percent are from China," the report said. The three items accounted for one fifth of the US's total imports from China.

  "We expect China's exporters to be more seriously hit amid the slowdown of consumption demand in the US," it said.

  Consumer spending accounts for two-thirds of US economic activity and has so far been the strongest pillar of growth.

  ABN Amro said it has chopped its year 2002 export growth forecast for China from 15 percent to 3.5 percent.

  China's projected GDP growth this year was also trimmed to 7.2 percent from 7.5 percent. In 2002, GDP is forecast at 7 percent, down from the original 8.5 percent.

  "Apart from the expected slowdown in external demand, we also see initial signs of a slowdown in investment demand, which has been supported by the government's pump-priming over the past few years," the bank said.

  Profit growth of industrial enterprises rose by 15.8 percent in the eight months to August this year, sharply down from 86 percent in the same period last year.

  "Weakening profit growth is not able to support another year of strong investment growth. Furthermore, facing a slowdown in the global economy, people are more cautious about business expansion, leading to a slowdown in investment demand," it said.

  Meanwhile, Standard Chartered Bank said China has carried out reforms better than the rest of the region and this was the main reason why it has attracted the bulk of foreign investments into Asia.

  "The argument that China has been gaining foreign investment at the expense of the rest of Asia is flawed," Standard Chartered said in a report.

  "While China is likely to continue to get the bulk of foreign investment inflow, globalization driven by comparative advantage means that foreign investment into Asia is a net sum gain," it said.

  Standard Chartered compared both China and Japan which it said had similar economic problems and said that the giant communist nation "had so far pursued a better reform-growth policy mix than Japan and many other Asian countries."

  For example, China has reformed its inefficient state-owned enterprises, which now produce less than 25 percent of total industrial output, down from more than 80 percent in the early 1980s.

  And while the closure of the state-owned enterprises raised unemployment the effort is bearing fruit as the number of loss-making firms is falling and corporate profits rising, it said.
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