Monday, March 15, 2004

Threats To China's Economic Growth

Prime Minister warns of threats to China's economic growth

By James Kynge and Mure Dickie in Beijing

China's economy is at a "critical juncture", Wen Jiabao, prime minister, said in his annual news conference on Sunday, pointing to the threat that over-investment, inflation and shortages of energy pose to the country's rapid growth.

Speaking after the closing session of the National People's Congress (NPC), China's legislature, Mr Wen warned: "Deep-seated problems and imbalances in the economy over the years have not been fundamentally resolved."

Mr Wen, who became premier a year ago, did not offer new strategies to deal with these problems, which he avoided calling "overheating". Analysts have warned that GDP growth of more than 9 per cent last year, with fixed-asset investment rising by 27 per cent, could create inflationary pressures.

Beijing has said it wants to slow investment by curbing bank lending this year through administrative fiat. It also plans to address transport bottlenecks by building more rail lines and roads, allowing more coal to be shipped to energy-starved power stations. ...Link

Staggering challenges ahead for China

..."The Chinese economy comes up with a bubble whenever it has a chance," Andy Xie, a Hong Kong-based economist with Morgan Stanley, said in a research note Monday.

"Chinese people have a high preference for gambling. If you want to verify, just check out the casino nearest to you," he said.

While China's economy grew by 9.1 percent last year, the 800 million people living in the destitute countryside only saw limited gain.

It could be costly for the government to seek to suddenly lift the incomes of two-thirds of the population, with measures such as a reduction in taxes that have so far provided a reliable income for the government.

But analysts agree reforms in the rural areas are long overdue, after more than a decade of exclusive focus on development along the prosperous eastern seaboard.

Rural incomes rose just four percent last year, half the increase in the cities, and farmers now on average make less than one third of the city dwellers.

Scattered reports of unrest in the countryside -- sometimes involving thousands of protesters -- may have motivated the government to act.

"Dissatisfaction in rural areas has reached an unparalleled level," said Chen Xingdong, chief economist with BNP Paribas Peregrine in Beijing.

"It's like a balloon, if you keep inflating it, it will eventually explode," he said. ...Link

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