China's economic growth may fall under the 10 percent bar next year as
investment, exports and industrial output slow down, a top think tank predicted
on Wednesday.
"With high growth and low inflation, the economy is ready for a soft landing,
despite the problems of yawning surpluses, too-rapid investment and heavy
pressure on environment and resources," said the Macro Economy Research
Institute of the National Development and Reform Commission in its latest
report.
It said that the government's macro-economic policies have restrained runaway
investment and loan supply.
China's gross domestic product growth (GDP) will slip back to 10.3 percent in
the fourth quarter from a second quarter peak of 11.3 percent. As a result, the
year's GDP growth is expected to slow to 10.6 percent.
The Consumer Price Index, an inflation weather vane, will grow 1.5 percent
this year, it said.
The report written by economist Wang Xiaoguang and three other experts claims
that the world economy has entered an adjustment period. "Both trade and
economic growth will slow next year. With flat demand and rising supply of raw
materials, prices of oil and other primary raw materials will drop," it said.
"Next year, China will have to deal with the toughest situation for exports
that it has faced since it entered the World Trade Organization because the
United States, which imports more than 40 percent of China-made exports each
year, has seen a marked slowdown in its economic growth," said the report.
The depreciating U.S. dollar and relatively high interest rates set by the
American Federal Reserve would put more pressure on China to appreciate the
Renminbi (RMB), it noted.
The institute has urged China's Central Bank to adopt more stringent monetary
policies, lifting interest rates for instance, to curb hot money inflow and cool
RMB revaluation speculations.
It also suggested a more flexible RMB exchange rate system. "Broadening the
floating band would make investors and speculators more cautious and help
stabilize the RMB."
China currently only allows the RMB to rise or fall 0.3 percent on the
inter-bank foreign exchange market from the central parity rate.
The report said that governments, at both central and local level, should
spend more on urban and rural public utilities and on social benefits, in
particular health care, education and environmental protection.
Monopolistic sectors should be taxed more or contribute a fraction of their
profits to fuel the country's social security fund.
The institute advocated further reduction of export tax rebates and the
removal of incentives for foreign investment to make sure that the country's
economy is less dependent on exports.
China needs to adopt a more active employment policy to raise residents
income and boost consumption, it said, adding that services and cars represent
the biggest potential for consumption.
