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Red-hot China set to cool a touch in 2006
By admin on 2014-12-02

China's tax chief said on Tuesday the economy had grown by 9.8 percent in 2005, but comments by a senior commerce ministry official and analysts suggested the pace of expansion could slow this year, if only slightly.

Xie Xuren, commissioner of the State Administration of Taxation, gave the same GDP growth figure as Ou Xinqian, a vice minister responsible for the National Development and Reform Commission, China's main economic planning agency, on January 1.

That would make 2005 the third consecutive year in which China's economy had grown by around 10 percent. The economy expanded by 10.1 percent in 2004 and 10.0 percent in 2003.

But Vice Minister of Commerce Yi Xiaozhun said exports, a key driver of growth, could come under pressure this year because of frictions with China's trade partners over the value of the yuan.

Exporters have had to lower their expectations on expanding overseas markets due to increasing pressure for the currency to appreciate, the Shanghai-based China Business News quoted Yi as saying.

"That means we will not see a relaxed year for 2006," Yi said. "A key task for 2006 will be creating a fair trade environment and increasing imports appropriately so we can maintain coordinated development of both exports and imports."

GDP growth will probably slow in 2006 because of a drop in the trade surplus, Jonathan Anderson, chief Asia-Pacific economist at UBS, told a conference in Shanghai.

But Anderson said he expected a soft landing for the economy, as the environment for domestic industry improves. He sees GDP growth this year of 9.1 percent after 10.7 percent in 2005.

"A recovery in construction and infrastructure spending, together with continued buoyant consumption and export momentum point to a better domestic demand outlook for 2006," he said.

Strong consumption would help sustain GDP growth of 8 percent to 8.5 percent for the next five to 10 years, he added.


HSBC economist Qu Hongbin said he too expected another strong year for China in 2006, with growth likely to be only half a point lower than last year.

But he said China faced an urgent task to tilt growth toward consumption and away from investment, which he said had accounted for about 60 percent of GDP growth in the last three years.

Qu told a news conference in Beijing that the government should take the lead by redirecting its own spending from physical infrastructure to areas like education and healthcare.

This could help boost China's consumption-to-GDP ratio by 3-4 percentage points and give consumers a reason to spend more and save less.

"It's a challenging task but that shouldn't be an excuse for China not starting on it right now," Qu said.

Tax chief Xie said tax revenues grew by 20 percent in 2005 to 3.09 trillion yuan ($383 billion). Higher revenues could give Beijing more leeway to rebalance the economy using fiscal policy.

China has already raised income tax thresholds, scrapped the country's 2,600-year-old farm tax and promised to abolish rural school fees to try to put more money in people's pockets.

Weaning the economy off exports and related investments would reduce China's vulnerability to the sort of trade tensions highlighted by Yi, the vice commerce minister.

Critics, particularly in Washington, charge that China's ballooning trade surplus, which more than tripled to $102 billion in 2005, is a major source of global economic imbalances and is underpinned by an artificially weak currency.

Some economists expect the trade surplus to drop to about $100 billion this year, which they say would probably not be enough to reduce U.S. pressure on Beijing to let the yuan appreciate more quickly.

Since China revalued the yuan by 2.1 percent against the dollar in July and adopted a managed float, it has let the currency rise 0.54 percent against the U.S. currency.

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