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2010 economy 'looking good'

By Wang Zhuoqiong and Zhu Qiwen (China Daily)
Updated: 2009-08-28 09:04

The Chinese economy will grow by more than 8 percent in 2010, despite lingering uncertainties in the global market, a leading Chinese economist predicted.

Fan Gang, director of the China National Economic Research Institute and a member of the money policy committee of the People's Bank of China, is confident that the country can meet its GDP growth target of 8 percent this year and will keep the momentum of the economic recovery next year.

He attributed the strong economic growth to the government stimulus package, rising investment in property and industrial sectors as well as a growing trade surplus.

China's 4-trillion-yuan ($585 billion) stimulus package, mainly on domestic investment and consumption, is shoring up the economy, with manufacturing showing more signs of recovery, according to the State Council, or Chinese cabinet .

"Investment in real estate so far this year has almost fallen to its lowest level for years," Fan said, "yet money has started to flow into this sector and will increase quickly next year, making it a significant source of GDP growth."

From January to July, property sales have soared 37.1 percent year-on-year. Investment growth in real estate development has accelerated from 1 percent in January and February to 11.6 percent in July, according to Liu Shijin, deputy director and senior research fellow at the Development Research Center of the State Council. He spoke at a meeting of National People's Congress yesterday.

Industrial enterprises, particularly in mechanics and chemical sectors, will resume investment in 2010, despite warnings of overcapacity among enterprises and manufacturers, Fan said.

The State Council on Wednesday vowed to "resolutely" curb overcapacity because the economy was still in a "critical period".

Related readings:  Chinese, Japanese optimistic about Chinese economy  China reaffirms policy, says economy still shaky  China urges efforts to boost economy in western regions  Economy expected to grow 3% in 2010: Govt

Restraints will be imposed on steel and cement output, as well as parts of the coal, glass and power industries, as Chinese economic growth rebounded to 7.9 percent in the second quarter and Japan, France and Germany exited recession.

Another contributor to the growth is trade surplus.

"Exports, expected to rebound at a low point, will resume their momentum next year," Fan said.

China's exports declined 22 percent year-on-year in the first seven months of this year. But its global market share is rising. The proportion of Chinese products among the total imports to the US and Japan has grown by 2.3 and 5.6 percentage points respectively from January to April, with an increase of 1.9 percentage points in the EU market.

To achieve the GDP growth, Fan suggested policymakers should maintain the pace of government-led investment.

"The growth rate at 8 percent can be guaranteed as long as growth of government-led investment does not turn negative," he said.

However, some experts expressed worries about the impact of the stimulus package on the economy.

The stimulus index weakened significantly in the second quarter this year, contributing only 0.3 percent to the economic growth and will continue to shrink in July, according to Stephen Green, an economist with Standard Chartered.

About 80 percent of the money financed in infrastructure projects in the first half-year came from bank loans, instead of the finance budget, he said.

The Ministry of Finance said it would invest 200 billion yuan in the fourth quarter, after giving 80 billion yuan to local governments in the third quarter.

People also raised questions about the efficiency of the government investment.

The government should learn lessons from the use of government funding after the Asian financial crisis in 1998, said Jia Kang, director of the Institute of Research at the Ministry of Finance.

He urged the government to send inspection teams to supervise and monitor the ongoing or planned projects invested in by the government or in partnership with private investment.

"It is a top priority to ensure the quality of investment projects at every stage through timely checks and guidance," he said.