Bangkok (UN Information Services) – China’s economy will report a moderate slowdown in growth in 2008, but remained underpinned by strong domestic demand and government social spending despite a slowing United States economy, according to the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
In its Economic and Social Survey of Asia and the Pacific 2008, ESCAP said it expects an easing in growth to 10.7 per cent from 11.4 per cent in 2007 – the fastest for China in 13 years – as a result of a slowdown in exports and government measures to cool growth.
“Investment continues to be the main driver of growth, remaining resilient despite government cooling measures and with support from low real interest rates,” ESCAP said. “A slowdown in exports and the government’s measures to cool the economy are the main reasons for the moderation.”
Other factors expected to underpin growth are domestic demand, rural consumers increasing their spending power, and rising consumption through higher government spending on social welfare by way of the government’s “harmonious society” initiative.
ESCAP downplayed any significant impact on China’s economy resulting from a downturn in the United States due to the sub-prime credit crisis. “In a worst-case scenario – where the United States economy goes into a recession – the impact on China will not be as great as on other Asia-Pacific countries,” it noted. “Due to its blistering pace, China’s growth will be resilient but will slow.”
On trade, China witnessed increasing exports to the European Union in 2007, a shift which compensated for a steady fall in exports to the United States – China’s second largest export market. China has also witnessed a boom in trade with Africa.
Also, Chinese and other Asia-Pacific investors are playing a key role in supporting developed nations through the recent financial turmoil. “The shifting balance of financial power is also clear in the dramatic rise in the overseas investment of Chinese and other Asia-Pacific corporations,” ESCAP said.
Growth has also come in service exports which globally rose by an average 16 per cent over 1995-2006. “China had the best performance in transport services exports of all Asia-Pacific countries, growing at 34 per cent per year over 2000-2006,” it said.
China is facing an increasing challenge from inflation. In 2007, inflation rose dramatically” to 4.8 per cent – the highest in a decade, and three times the 1.5 per cent reported in 2006.
Chief inflationary concerns lay in higher international oil and food prices. “Rising food prices are a bigger inflationary concern than oil prices because food accounts for a far higher proportion of consumer spending. Food price inflation particularly hits low income households,” ESCAP said in the Survey.
ESCAP also warned that the fast paced growth was also coming at an increasing cost to the environment. “The destabilizing effect of growth on the environment is becoming more apparent. Air pollution, especially in large cities, is increasing the incidence of lung disease,” ESCAP said, adding that the loss of arable land to manufacturing is also raising concerns.
ESCAP pointed to the government’s pledge to eliminate export tax rebates for 553 highly energy-consuming and resource-intensive products, such as cement, fertilizer and non-ferrous metals.
Another major challenge for China has been in growing income inequalities, considered among the highest in the world. “A major part of China’s income inequality is interprovincial inequality, mirrored by inequality in human resource development across economic and social indicators,” ESCAP said. The differences have been sharpest between coastal and western provinces.
To reverse the trend, China in 1999 introduced its western development strategy, “Go West.” The policy is designed to provide priorities for infrastructure construction, environmental protection, industrial upgrading, human capital accumulation, science and technology research, and opening the provinces to foreign direct investment.
ESCAP noted evidence had pointed to “somewhat encouraging” trends in reducing the gap in gross domestic product per capita between the regions. “In 2005/2006, three quarters of the western provinces experienced higher growth than the majority of coastal provinces,” it said.
Development of the western provinces and improved infrastructure was also leading to increased regional ties with China’s neighbours. Xinjiang is evolving into China’s gateway to Central Asia, while Tibet has experienced rapid growth in exports to neighbouring countries. Guangxi has seen a rapid boost in cross-border trade with Vietnam, while Mongolia and the Russian Federation both lifted trade with Inner Mongolia.
Further information on the Survey can be found at:
For more information, please contact:
Hak-Fan Lau, UN Information Services, ESCAP
Tel.: +66-2-288-1866, Mob.: +66-84700-1147
Ari Gaitanis, UN Information Services, ESCAP
Tel.: +66-2-288-1862, Fax: +66-2-288-1052