Developing East Asian economies should grow an
average 7.5 percent this year, the Asian Development Bank said Tuesday, but
warned China to rein in its overheating economy and high public spending
in Taiwan.
The Manila-based bank also urged South Korea to keep close watch on corporate
governance and expressed concern about political uncertainty.
Masahiro Kawai, head of the bank's Office of Regional Economic Integration,
said that while East Asia's overall economic outlook is positive, its biggest
engine, China, needs to restrain its robust growth.
"A high growth rate is good for the rest of the Asian economies, but it's in
the best interest of everybody to see China's sustained, stable growth rates,
and the current growth rates are a bit higher than sustainable," he said.
"We have not quite seen the direct impact of monetary tightening so far ...
the current monetary policy tightening appears to be insufficient," Kawai said,
adding an April hike in interest rates has not tamed loan growth.
Earlier Tuesday, China announced its economy grew a stunning 10.9 percent in
the second quarter from a year ago.
When told about the new growth figures, Kawai exclaimed, "Oh wow." He added
that ADB expected a lower figure but that it stands by its projections released
Tuesday, including forecasts that China will grow 10.1 percent this year and 9
percent in 2007.
In Beijing, Zheng Jingping, spokesman for China's National Statistics Bureau,
said the country can sustain "fast and stable growth" but must control a
construction boom and rapid credit growth to prevent inflation, which so far
hasn't emerged as a problem. In the first half, inflation rose just 1.3 percent,
according to figures released in Beijing.
Kawai urged the Chinese government to combat overheating by setting stricter
reserve requirements for banks, raising interest rates further and allowing the
yuan to appreciate more.
Noting that returns on new investments in China was declining, Kawai said
Beijing should shift of investment to "high-quality" investments in
environmental protection, energy efficiency, human capital and strengthening the
social safety net in rural areas.
"There are many inefficient investment activities going on," Kawai said.
He also said China should scale back its pace of foreign currency reserves,
which is on pace to surpass US$1 trillion (euro800 billion) this year.
East Asia as a whole has benefited from the broad economic expansion in major
industrial countries and the rebound of the global technology industry, the ADB
said.
It projected that as a region East Asia will expand an average of 7.5 percent
this year, but that growth will slow to 6.9 percent in 2007 due to receding
growth in the US, Japan and China.
In other economies, the report urged South Korea to keep watch on inflation,
corporate governance and rising property prices.
"Structurally, investment is constrained, in part, by problems in corporate
governance, recently demonstrated by high profile government cases against both
domestic and foreign firms," the report said.
Among recent scandals, the chairman of Hyundai Motor Co., South Korea's
largest carmaker was jailed amid accusations he helped create a slush fund to
curry government favors.
The bank predicts the South Korean economy to grow by 5.1 percent this year
from 4.0 percent last year.
On China's Taiwan, the ADB said the local government's ability to use fiscal
policy was limited by rising public spending and debt, adding that "political
uncertainty affects confidence," referring to the corruption scandal that has
bogged down "President" Chen Shui-bian this year. It projects 4.4 percent
economic growth for the island this year.
The ADB report, which doesn't include Japan, surveys the economies of China,
South Korea, Taiwan, Hong Kong and the 10 members of the Association of
Southeast Asian Nations - Brunei, Cambodia, Laos, Malaysia, Myanmar, the
Philippines, Singapore, Thailand and Vietnam.
Kawai warned, however, ADB's outlook could be affected by higher oil prices,
which could increase inflationary pressures, and a bird flu
outbreak.
