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ADB: China's economy slows but remains strong

By Ding Qi (chinadaily.com.cn)
Updated: 2008-09-16 16:58

China's economy is expected to grow at the lower rate of 10 percent this year and may slow further in 2009 amid a global downturn. Yet it still ranks among the world's fastest growing economies, the Asian Development Bank (ADB) said in a report released Tuesday.

In the Asian Development Outlook 2008 Update, the Manila-based bank anticipated China's gross domestic product (GDP) would grow 10 percent this year, consistent with its April forecast. However, it lowered China's 2009 predicted growth rate from 9.8 to 9.5 percent on the back of "a reduced trade surplus and slower growth in investment as a result of the global economic downturn".

In the first half of this year, the nation's GDP expanded 10.4 percent, 1.8 percentage points slower than the same period last year.

"Weaker external demand and the impact of monetary policy tightening trimmed economic expansion" in the first half, according to Ifzal Ali, ADB's chief economist.

Ali said that a growth rate of 9.5 percent in 2009 would bring the country's economy back to its long-run sustainable growth rage of 9 -10 percent, easing the strains on energy, inflation and the environment.

The ADB report also forecasts China's inflation rate to be 7 percent this year, given surging consumer prices in the first half. However, the report notes prices have eased lately.

"A better than expected grain harvest and an increase in pork production – which dropped in 2007 due to a pig virus - provided relief in the middle of the year," the ADB report said.

The bank also lifts its inflation projection for next year to 5.5 percent from 5 percent in April, citing possible price hikes of fuel and electricity, which may lead to higher production costs being passed onto consumers.

Financial analysts have anticipated the Chinese government may consider easing price regulation of processed oil and electricity in the coming months if inflationary pressure decreases and crude prices fall to a reasonable level.

The ADB also expects the financial authority will ease credit controls in the second half to assist small firms, and fiscal policy will remain slightly expansionary to boost domestic demand.

The central bank announced yesterday it will reduce the benchmark loan interest rate by 0.27 percentage points, the first time since 2002, and lowered the reserve requirement ratio for commercial banks, the first such move in nine years.

Commenting on the moves, Zhuang Jian, senior economist at the ADB, said the rate cuts indicate the government's tightening monetary policy is beginning to relax. He also expected more loosening policies to come either later this year or in 2009 in order to ensure the sustainable growth of the economy.