Mainland GDP growth tipped to slow

PUBLISHED : Friday, 22 November, 2002, 12:00am
UPDATED : Friday, 22 November, 2002, 12:00am

China's GDP growth is likely to slow over the next two years unless authorities carry out

urgently needed reforms beyond those already planned, the Organisation for Economic Co-operation and Development said.

The OECD, comprising 30 of the world's richest nations, made the predictions in a special section on non-member countries in its twice-yearly Economic Outlook report yesterday.

The report also said the industrialised economy faced a 'slow and irregular' recovery, but there was little chance of going back into a recession, defined as two consecutive quarters of negative growth.

The OECD forecast China's gross domestic product growth to hit 7.9 per cent this year, and then fall to 7.5 per cent next year and 6.9 per cent in 2004.

China's economy has soared this year, driven by surging exports and a boom in foreign direct investment and capital spending, prompting the government to set an official growth target of 7.8 per cent for 2002.

But the OECD warned that China faced a host of challenges if it was to sustain break-neck GDP growth. The OECD expects 0.7 per cent deflation this year, easing to 0.2 per cent next year and no price change in 2004.

The ability of Beijing's monetary policy to deal with deflation is limited, as interest rates are already low at two per cent and risk-averse banks are unwilling to lend to businesses.

The report recommended reforms to ensure banks operate as 'profit-oriented commercial entities'; improve governance by cutting government intervention in management of state-owned enterprises; strengthen competition and curtail regional protectionism.

As for its member country economies, the OECD said that 'considerable monetary and fiscal stimulus' combined with a bottoming-out of the technology sector and strong growth in Asia meant 'a fall-back into recession is therefore improbable'.

The United States, the world's biggest economy, is forecast to have GDP growth of 2.3 per cent this year, rising to 2.6 per cent next year and 3.6 per cent in 2004.

Japan's economy, the world's second biggest, will shrink by 0.7 per cent this year and grow only 0.8 per cent in 2003 and 0.9 per cent the year after, the OECD said.