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WB: China's economy to grow by 8.3%
Updated: 2005-04-27 17:30

China's economy is expected to grow by 8.3 percent this year, while its inflation rate will be 3.5 percent, well within the range set by the central government, the World Bank said Wednesday in a quarterly report.

According to its quarterly report on the Chinese economy, the bank said it expects further easing of domestic demand growth, notably investment, on the back of limited credit growth and sliding profits.

"Inflation is likely to remain within the government's target range, whereas China will retain its strong fiscal and external positions. We project a GDP (gross domestic product) growth of 8.3 percent and inflation of 3.5 percent."

Domestic demand is cooling down, but external demand keeps GDP growth high. Real fixed asset investment FAI growth was 17.2 percent year-on-year in the first quarter of 2005, which is down from 24.9 percent in the year 2004, although up from the 15.5 percent in the final quarter of last year, according to the report.

It said investments are shifting away from sectors previously considered as overheated such as steel and cement. Retail sales growth is gaining momentum, although consumption growth is still likely to lag GDP growth for the year.

"Tax revenues also suggest slowing in domestic demand, and trade data confirm this trend. At the same time, the rising trade surplus is boosting industrial production and kept GDP growth rateat 9.5 percent in the first quarter, the same as that in the fourth quarter of 2004."

Slower money growth indicates that external surpluses pose as of yet little risk for China's monetary policy. Money growth in the first few months of 2005 is compatible with the 15 percent growth target for the year, and the record balance of payment surpluses seem as of yet to pose little complications for monetarycontrol, according to the report.

The macroeconomic outlook for 2005 remains favorable, said the bank. "Global growth is expected to slow down from its record 2004level, but still remains robust, barring sharp adjustments in the dollar, global interest rates, and oil prices."

"Given the constellation of risks, prudent economic policies are appropriate. Domestically, risks are on the upside, particularly on investment. Externally, downside risks appear to dominate, largely weaker than expected world growth and complications stemming from the large trade surplus."

The bank said a rebound in investment in early 2005 raised concern among analysts, but the trend remains one of a slowdown, and the changing composition should give some comfort to policy makers that the policies introduced in 2004 are working.

Moreover, the number of new projects declined in January-February, with a 6.6 percent fall in new investment volume.

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