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China News

Forecasts bright, govt must tread lightly By Si Tingting

Source:www.china       Updated: 2009-12-04 07:31

Economists may have reached a consensus that China's economy will grow at a moderately faster pace next year than this year but some are warning that the government's excessive emphasis on GDP growth will distort an already-tilted economic structure.

China's economy will grow 8.8 percent next year and lead the world out of the recession, according to a preview of the United Nation's annual economic forecast, which predicted that the global economy will expand 2.4 percent as compared to this year's 2.2 percent contraction.

The nation's 2010 growth estimate is higher than the UN's prediction in June, yet it's still below the double-digit growth from pre-crisis levels. China is expected to experience the world's fastest growth in 2010 because of public and private investments; the US economy, the world's largest, will outpace Japan, the UK and Euro zone countries, the UN report said.

The State Information Center, a leading government think tank, released its forecast Thursday, saying China will likely grow by 8.5 percent, with its fiscal deficit maintained at about three percent of the GDP and the growth of new loans to exceed 8 trillion yuan.

But it warned that "inflation is not an issue in the short term, but the government should not further its progressive monetary and fiscal policies."

Samsung Economic Research Institute had a much higher expectation of China's GDP growth in 2010: about 9.8 percent year-on-year.

However, Liu Jinhe, chief researcher of the research institute, does not think highly of this number.
"Heavy government-driven investment will probably create excessive capacity and bad loans as witnessed in the 1990s," Liu said.

In addition, he said, it will shrink private businesses as a majority of bank loans go to state-owned enterprises, squeezing out private competitors in industries such as steel, airlines, coal-mining and the property market.
The growth of domestic consumption, which the government highlighted as a long-term economic solution, is not likely to exceed this year's amount, Liu said.

"The recently released regulations to increase people's tax burdens paled the government's effort to promote consumption," he said.

The Ministry of Finance recently issued a notice saying that cash subsidies to employees for transportation, housing, communication and meals must be counted as part of their total salary, not as welfare, and should be taxed.

Liu said that prices for many daily necessities, such as water, gas and food, are on the rise and will dampen consumption.

Two major cooking oil manufacturers in China, COFCO Group and Yihai Kerry Group, were reportedly coordinating a nationwide price hike, with prices of certain products increasing by 10 percent.

The UN credited massive fiscal stimulus measures worldwide since late 2008 for the expected rebound. It recommended that these stimulus measures continue - at least until there are clearer signals of a more robust recovery in terms of increasing consumption, more private investment and rising employment rates around the world. Assistant Secretary-General Jomo Sundaram said the UN believes that governments should ignore concerns about growing fiscal deficit and possible inflation and continue stimulus efforts until the economic recovery is assured.