Economy likely to slow down: WB
Source: China Daily 08/16/2006 Date: 2006-08-16
The country's economy is likely to slow down slightly during the rest of the year, the World Bank said yesterday, pointing to the central government's moves to rein in growth.
Gross domestic product (GDP) may grow 10.4 per cent for the whole of 2006 as recent macroeconomic control measures are likely to slow down the sizzling economy to under 10 per cent in the second half of the year, the bank said in its latest quarterly report.
The economy grew at a decade-high 11.3 per cent in the second quarter, the fastest since 1996, raising fears among economists that the economy is overheating and prompting the government to take a slew of macro control measures. GDP expanded by 10.9 per cent in the first half.
But despite the tightening measures, the World Bank said that investment growth, which grew 31 per cent in the second quarter, would remain strong in the second half.
Domestic consumer spending "should continue to benefit from rising incomes, particularly in urban areas," the bank said.
The Washington-based international financial organization also projected "a gradual slowdown in exports to continue."
"This scenario would imply a slight slowdown in GDP growth to under 10 per cent in the second half, resulting in growth of 10.4 per cent for the year as a whole and 9.3 per cent in 2007."
The central bank raised the one-year benchmark lending rate by 27 base points to 5.85 per cent on April 27 and has since increased banks' required reserves ratio twice, with the latest taking effect yesterday.
The reserves ratio is the proportion of deposits a bank is required to have with the central bank as a way of managing lending capacity.
In addition, the government has also recently taken a string of administrative measures against some sectors, such as imposing restrictions on land use and foreigners buying property in the country, in a bid to cool the housing market.
Urban property prices rose 5.7 per cent last month from a year earlier a touch below the 5.8 per cent in June according to official figures released yesterday.
The World Bank, however, played down concerns of an overheating economy. "The outlook for China's economy remains favourable. With production capacity continuing to expand in line with demand, inflation low, and the current account in surplus, the main policy concern is not general overheating," the bank said.
"There is no generalized overheating at the moment," said Bert Hofman, the World Bank's lead economist for China. "What we are concerned about is the efficiency of a lot of this investment. If it's not efficient, it will lead to overcapacity in some sectors and an increase in non-performing loans in banks."
China's FDI declines 5.49% in July
Foreign direct investment (FDI) in China continued to fall last month, but experts stressed that this does not mean foreign investors are losing confidence in the nation.
FDI in China stood at US$4.28 billion in July, down 5.49 per cent year-on-year, said the Ministry of Commerce, which approved 3,022 foreign-invested enterprises last month.
Citigroup economist Huang Yiping said the slight drop does not mean China is any less attractive to overseas investors, but it may indicate an overall slowdown in foreign investment.
"The figures represent less of a change in business confidence, it's just the end of the rush. In addition, more people are now thinking of diversification," said Huang.
Although he no longer expected to see a big jump in foreign investment flows to China, Huang said that the figure was still likely to remain at a relatively high level.
FDI in the country totalled US$32.7 billion in the past seven months, down 1.16 per cent year-on-year.
The government approved 22,772 foreign-funded enterprises in this period, down over 7 per cent from a year ago.
Hong Kong, the British Virgin Islands and Japan were China's major sources of FDI.
The ministry did not release data on contracted foreign direct investment deals which have been signed but are yet to be executed.
Meanwhile, the statistics published by the ministry left out foreign investment in the financial industry.
The ministry estimated that China's FDI dipped slightly to US$60.33 billion in 2005, but the figure was later revised to US$72.4 billion after the financial sector was taken into account.
The final result marked a growth of nearly 20 per cent compared to the previous year.
It showed that China's financial sectors, including banking, insurance and securities, had become a new destination for foreign direct investment. The sector attracted an annual FDI of less than US$2 billion in previous years.
Experts expected that the financial and service sectors would continue to attract growing foreign investment this year.
So far, industry, especially the manufacturing sector, continues to absorb more than 70 per cent of foreign investment in China.
After the Chinese Government published new regulations on foreign investors' mergers and acquisitions (M&As) with Chinese companies, allowing share-swaps in M&As between them, this new method is expected to become a way of investing in the country.
Lu Jinyong, an investment researcher at the University of International Business and Trade, said foreign investors' M&As in China are on the rise and that the trend would continue.
He said in the past foreign investment to China largely focused on building new facilities in the country, but M&As accounted for over 80 per cent of total global FDI.
