CHINA forecast yesterday that economic growth this year will fall to nine per cent, with inflation dropping drastically to 15 per cent. Xinhua (the New China News Agency) quoted economists from the State Statistics Bureau and the Chinese Academy of Social Sciences as saying a 'soft landing' of the economy was likely to take place this year with the strengthening of macro-economic controls. 'Inflation will be controlled at some 15 per cent this year,' the economists predicted. Hong Kong-based analysts agreed economic growth and inflation would drop but were sceptical they would fall to the level forecast by their Chinese counterparts. The analysts predicted the economy would still hit 10 per cent, with inflation running at between 17.5 and 20 per cent, depending on the severity of the credit squeeze. 'I doubt they can achieve the forecasts because it is unlikely they will tighten credit that drastically this year,' said Qu Hongbin, China economist at Smith New Court Far East. 'Inflation will fall. There's little doubt about it but the drop will not be on the scale anticipated by the Chinese,' said Ben Kwong, research director at Dharmala Securities. Last year, the economy expanded by 11.8 per cent, compared with 13 per cent in 1993. Inflation, based on the consumer price index which measures price changes of retail goods and services, increased 24.2 per cent, which was a post-1949 high. Hong Kong analysts said while Beijing would try hard to rein in fixed asset-investment - the key cause of the runaway inflation - it could not tighten the screws too much without hurting state enterprises, which were the main target of reforms this year. 'Everybody knows the state sector is behind the rapid increase in fixed-asset investments, yet there is little room for cutting back, without adding to unemployment and thus instability,' said Mr Qu. Since the second half of 1992, China had experienced an overheated economy because of excessive demand in the property sector. To rein in the chaotic economy, it began instituting macro-economic and administrative measures to cool the economy. The Chinese economists said the financial and monetary policies would be strict this year, adding the money supply would be maintained at last year's level. They noted that interest rates would play a more 'flexible' role in China's economy. China took the first step to use interest rates to influence money supply in the New Year, raising lending rates for the first time on January 1. Investment in fixed assets this year is expected to reach 1.9 trillion yuan yuan (about HK$1.71 trillion), an increase of 20 per cent over last year, while industrial output is forecast to go up 13 per cent, compared with 18 per cent. Grain output would rise to 450 million tonnes in 1995, the economists predicted, saying more funds would be invested in agriculture. They predicted total retail sales of commodities would be nearly two trillion yuan, up more than 20 per cent from last year. China would achieve a balance in its exports and imports this year, with each reaching US$140 billion. China's residents would enjoy a more comfortable life with more income, the economists said. The actual annual income would increase by 6.5 per cent for the residents at town level and above, and 5.5 per cent for those in rural areas. The Chinese economists were optimistic about China's overall economic environment this year, saying that there would be a basic balance of aggregate supply and demand.
