Think-tank urges action on overheating economy

An overheated economy and worsening inflation will be the central government's major concerns next year, problems which will demand tougher macroeconomic controls, a mainland think-tank said yesterday.

Launching its economic yearbook in Beijing, the Chinese Academy of Social Sciences (CASS) forecast that gross domestic product would grow 10.9 per cent next year and the consumer price index, the main gauge of inflation, would rise 4 per cent.

The academy also revised up its April GDP growth forecasts for this year from 10.9 per cent to 11.6 per cent and its CPI growth outlook from 2.7 per cent to 4.5 per cent.

Debate has been intense about whether the economy is overheated and whether inflation is spreading from the food sector to the overall economy this year, as the mainland has reported 11.5 per cent year on year GDP growth for the first three quarters and a decade-high CPI increase of 6.5 per cent in August and October.

CASS deputy dean Chen Jiagui said the economy was overheated, judging from the increase in fixed-assets investment and exports, substantial price rises in consumer products and soaring property and stock prices. 'It's not easy to slow down because our economy has been in the fast lane. Soaring food prices are spreading to other sectors. The pressure of serious inflation is accumulating,' Mr Chen said.

'Excessive liquidity and negative real interest rates have fuelled the swelling of asset prices. Macroeconomic controls will be more difficult next year.'

To cool the economy, the academy suggests the central government reduce fixed-asset investment - which it expects to rise 25.6 per cent this year and 24.2 per next year - and make easing inflation the focus of macroeconomic controls.

It forecast that the trade surplus would widen from this year's estimated US$260 billion to US$291 billion next year. It expects the value of imports to rise 22.9 per cent and exports 20.5 per cent next year.

CASS finance and trade institute director Pei Changhong was pessimistic about Beijing's efforts to effectively reduce the trade surplus under pressure from other countries.

'China's measures to reduce or scrap export rebates for thousands of products and to impose export duties on resources this year are not enough to address the trade imbalance. Coal exports have been rebounding. Exports of oil and steel are increasing, in response to international demand. Also, China is encouraging service exports,' Mr Pei said.

'Reducing the trade surplus should not rely on efforts relating to current accounts. China should work on capital accounts to ease the problem, for example, by encouraging enterprises to make outbound investments.'

On domestic consumption, the academy sees retail sales rising 12.3 per cent next year minus inflation, slightly higher than an estimated 12.2 per cent real increase for this year.

It said Beijing's hosting of the Olympic Games next year will add to the difficulty in handling economic overheating and inflation.

On the boil

Academy sees economy in the fast lane and pressures building up

The Chinese Academy of Social Sciences has predicted that the value of retail sales will rise: 12.3%