ADB economist: China economy cannot be seen as overheated
(Xinhua)
Updated: 2004-03-05 11:01

Though there are some worrying signs in investment and inflationary trends, China's economy cannot be seen as overheated, a prominent economist of Asian Development Bank (ADB) said in Beijing Thursday.

Min Tang, chief economist at the ADB Resident Mission in China, told Xinhua that the 9.1 percent growth rate last year was at the country's average level for the past 20 years. Various indicators pointed to only a slim possibility of the economy seeing another round of inflation in the near term, Tang said.

However, the investment sector showed signs of overheating in the first half of 2003. Despite the impact of the SARS outbreak, the country's investment in fixed assets soared more than 30 percent in certain months during the period.

Tang said such a high growth rate of capital investment could not be sustained. But situation varied in different parts of the investment sector. In terms of a rally in private and foreign investment, Tang said the growth was quite healthy because the economy had struggled to resume vigor since the 1998 Asian financial crisis.

But he pointed out that blind investment by local governments for political achievements was the main factor behind the overheating tendency. Since mid 2003, the Chinese central bank had tightened credit and brought reined in the trend. The central government also controlled land supply for certain sectors in which it feared redundant capacity. So far, the increase of credit had shown signs of slowing, while the speculative "hot money" sneaking into China been temporarily beaten off, Tang said.

"China's economy has entered a stable period," Tang said.

However, he warned the country should be alert against inflation. In the fourth quarter of last year, the inflation rate in China rose rapidly from about one percent to over three percent due to price hikes of farm produce and raw materials.

Tang said the rally of cereal prices was a normal cycle as grain prices had been dropping for the past few years. The current prices of farm produce were yet to reach the level of four to five years ago. He said the rally would help farmers to increase incomes and stimulate consumption.

On the other hand, he said the rapid growth of capital investment had pushed up the prices of major raw materials, such as iron and steel, nonferrous metals and fuels, he said.

Generally speaking, the prices of manufactured goods and consumer goods were stable or even dropping due to oversupply on the domestic market. Tang said as long as China continued to carefully tread a prudent line in monetary policy in 2004, and effectively put a lead on investment in over-capacity in certain industries, it would be able to retain the inflation rate within 2 to 3 percent for the year. The economy as a whole would emerge intact and healthy at the end of the year, he said.