WORLD> Impact on China
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WORLD> Impact on China
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Maintaining growth 'challenging'
By Xin Zhiming (China Daily)
Updated: 2008-10-14 08:07 As the world is concentrating on the effect of rescue plans in developed economies, China is pondering how to maintain its stable economic growth, with interest rate cuts expected to continue, analysts said. But economists are divided on how soon the interest rate adjustment will come.
The 3rd Plenary Session of the 17th Central Committee of the Communist Party of China, which concluded on Sunday, said the economy has remained sound, but the authorities would take prudent and flexible policies to keep the economy on the right track. To that end, the meeting stressed the role of stimulating domestic demand. "Consumption has remained sound, continuing to grow strongly, but investment and exports have substantially weakened," said Li Wei, an economist with Standard Chartered Bank (China). "Not only has real estate demand weakened, but travel and purchases of durable goods are also showing a slowing momentum," he said. Regarding fixed-asset investment, which accounted for more than one-third of China's annual economic growth, weakening exports have dragged down export-related investment and the country's energy-saving and emission-reduction measures, while being highly necessary, also dampen investment, said Hu Shaowei, an economist with the State Information Center. "The slowdown in the Chinese economy so far is unexpectedly serious," Li said. Many economists said China's economy may expand at a rate between 9 and 10 percent this year. And Li's team forecast it would grow by 7.9 percent year-on-year in 2009 and by 7 percent in 2010. Other investment banks and researchers also forecast a continually weakening Chinese economy, although many of them are not as pessimistic as Li's team. With the central bank having cut the interest rates twice within a month, analysts said further cuts will be made in order to prevent the economy from suffering a hard landing. The most serious challenge posed by rate cuts is the potential danger of rebounding inflation, but it seems, at least at the moment, that inflation will continue to fall, analysts said. "It may further ease to 4 percent (from 4.9 percent for August) by the year's end," said Gene Ma, a macroeconomic analyst at China Economic Business Monitor. "As we estimate, it will come down to around 3 percent next year, taking into consideration the authorities may liberalize energy prices." As the global financial crisis deepens, US interest rates are likely to continue falling, but the US economy is no longer as important a factor in terms of China's monetary policymaking. "China will mainly make policies in accordance with the development of its own economy," said Li. While many economists forecast two further interest rate cuts by the year's end, which means another cut may be imminent, others said there is not much room for further cuts, because the real deposit interest rate has been negative considering inflation while the inflationary trend remains uncertain. (China Daily 10/14/2008 page13) |
