CSFB Forecasts Higher GDP Growth Rate for China

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Last updated at: (Beijing Time) Friday, July 04, 2003

CSFB Forecasts Higher GDP Growth Rate for China

The Credit Suisse First Boston (CSFB) has revised its forecast of China's GDP growth rate back higher to 7.1 percent in 2003, said an economist of CSFB Friday in Hong Kong.

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The Credit Suisse First Boston (CSFB) has revised its forecast of China's GDP growth rate back higher to 7.1 percent in 2003, said an economist of CSFB Friday in Hong Kong.

In late April, CSFB lowered China's GDP growth forecast to 6.9 percent from a pre-SARS level of 8 percent. "But we are now revising back higher to 7.1 percent, given the better-than-expected data in May," said Dong Tao, chief regional economist of CSFB.

The SARS outbreak has dominated the Chinese economy in the second quarter. However, the consumer panic seems to have been short-lived. Sales have recovered by about 90 percent nationwide, pushing consumption onto a V-shaped recovery, said Tao.

He said that deflation, which had dragged China's economy over the past five years, seems to have ended. This has been supported by robust private consumption, strong export competitiveness, an upturn in the credit cycle, and rising domestic raw material prices, etc.

At the same time, Tao warned against property bubble in China'smarket.

In addition, CSFB projects 1.8 percent GDP growth rate for HongKong in 2003, against its 2.6 percent pre-SARS forecast. "However,compared to market consensus, we are on the optimistic side, due to our calls on a local consumption and tourism recovery. Still the external environment will decide the overall pace of recovery,though a weaker US dollar is favorable for Hong Kong's trade and tourism," said Tao.

According to him, local spending of Hong Kong has almost returned to pre-SARS levels after a free-fall in sales during lateMarch and through most of April when consumers stayed home. But the worst of the SARS impact on the economy is over.

However, tourism spending (accounting for 21 percent of total retail sales and 6 percent of GDP) may take longer to recover. Bargain hunters (lured by massive airline discounts), tourists from Chinese mainland (comprising 41 percent of Hong Kong's total arrivals in 2002) and business travelers are expected to lead the way, but a full recovery is unlikely until next year, according toCSFB.

Tao said that the Mainland/Hong Kong Closer Economic Partnership Arrangement (CEPA) is a great piece of news for Hong Kong for it gives Hong Kong new privileges. But competition will arise soon as WTO will open China's doors to other foreign companies.

Converting policy advantages to new pillar industries is the key, said Tao, urging that Hong Kong should not waste time anymore.

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