Economic boom 'set to continue'
By Philip Lagerkranser (China Daily)Updated: 2006-12-05 08:30
The world's fourth-largest economy may grow 9.8 per cent next year and 10 per cent in 2008, Goldman economist Liang Hong said yesterday in a note to clients. The expansion will cause only "limited" pressure on inflation to quicken, she said.
China's entry into the World Trade Organization five years ago prompted the government to open more of the economy to competition, leading to productivity gains, Liang wrote. The World Bank last month forecast the economy will expand 10.4 per cent this year, which would be the fastest pace since 1995.
"Trend growth is likely to be close to 10 per cent in China over the medium-term, driven by significant productivity gains," Liang wrote. "The real economy has become much more flexible and market oriented compared with the last cyclical boom more than 10 years ago."
The Chinese economy grew 10 per cent in 2003, 10.1 per cent in 2004 and 10.2 per cent last year. During the last five-year stretch of at least 10 per cent expansion from 1992 to 1996 growth varied between 14.2 per cent and 10 per cent and the inflation rate climbed as high as 28 per cent.
Using Liang's estimates, the size of China's economy would increase to US$3 trillion in 2008 assuming the nation's currency is unchanged against the dollar, according to Bloomberg calculations.
The yuan has climbed 5.7 per cent from 8.3 per dollar, where it was pegged for a decade until July 2005. It traded at 7.8258 to the greenback yesterday in Shanghai.
Such an expansion means China could overtake Germany as the world's third-largest economy. Germany's gross domestic product was worth US$2.8 trillion last year, according to Bloomberg data.
China's prospects of achieving smoother and more sustainable growth are also bolstered by the central bank's larger role in economic policy, wrote Liang.
The People's Bank of China has raised interest rates twice this year and forced banks to set aside more money as reserves to rein in lending and investment.
The central bank "now commands a much better understanding of macro issues and has a broader range of tools to conduct monetary policy," Liang said. It "has managed to 'stay on the curve' with much fewer hiccups than during past cycles."
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