China GDP growth tipped to slow

PUBLISHED : Thursday, 10 January, 2008, 12:00am
UPDATED : Thursday, 10 January, 2008, 12:00am

Economic growth on the mainland is likely to ease slightly this year as Beijing's tightening measures start to take effect, but the country will be able to withstand troubles in the global financial markets, according to the World Bank.

In its latest report on the global economic prospects, the World Bank forecasts the mainland's GDP growth will decelerate from 11.3 per cent last year to 10.8 per cent this year. Growth would further slow to 10.5 per cent next year, the bank said.

'We expect the growth of the developing countries to moderate in the next two years,' said Uri Dadush, director of the bank's Development Prospects Group and International Trade Department.

The mainland, with its relatively limited exposure to the anaemic subprime mortgage market in the United States, would manage to shrug off the problem while other markets might struggle, the report said.

'China should be well-positioned to weather the continuing turmoil in financial markets,' it said.

'The impact on Chinese financial institutions holding overseas collateralised debt obligations and other US mortgage-backed securities appears likely to be small in relation to the size of China's economy and its huge international reserves.'

Invesco, one of the world's top investment management companies, also expected the mainland's GDP growth to slow this year to about 10 per cent.

'But a slowdown does not necessarily mean that the country will no longer do well later,' said Paul Chan, Invesco's chief investment officer.

'On the contrary we believe that China will continue to demonstrate strong growth in coming years.'

Mr Chan said that with a pick-up in the pace of yuan appreciation, more funds would be attracted to the mainland.

'The Olympics Games to be held in Beijing this summer will also help boost market sentiment,' he said.

Inflation pressures would remain acute and this might tip a new round of rises in the country's interest rate, he said.

Wang Tao, head of economic and strategy for greater China at Bank of America, said it was 'quite probable' for Beijing to launch more monetary tightening measures such as an increase in the reserve requirement for banks to cope with rising inflation.

Facing persistent inflationary pressures and rising international oil and food prices, the State Council has asked various agencies and local governments to freeze state-controlled prices on oil products, natural gas, electricity, urban utilities and public transport.

It also required that prices of medical services and fertilisers were kept stable while passing tougher regulations to curb price manipulation.

Tao Dong, managing director of non-Japan Asia economics at Credit Suisse, said Beijing might raise rates four to five times this year to tackle inflation. He expects the yuan to rise about 10 per cent against the US dollar this year. Credit Suisse also forecast that the mainland's GDP would grow 10 per cent this year.