China's economy to grow steadily despite problems: economists

Despite low consumer price index and industrial profit drop, China's economy is believed to grow steadily for the second half of 2005.

Instead of slowing down as expected, China's economy engine maintained a strong momentum, with a 9.5 percent growth in the second quarter, even a little higher than the first quarter.

Along with the fast growth rate, China's economy suffers low consumer price index (CPI), slumping industrial profit and overgrowing foreign exchange reserve, which might affect the stability of the economy.

Overall, the economy is moving for the better, said Xie Fuzhan, deputy director with the Development Research Center of the State Council.

In the first half, the industrial profit rose by 16 percent, much lower than 40-percent increase last year.

"But there is no signal for any danger as China aimed to cool down its overheated industries," said Xie.

The first two quarters saw a mere 2.3 percent increase of the CPI, 1.3 percentage points lower from the same period last year, which aroused public worry about a possible deflation.

Zhong Wei, financial expert with Beijing Normal University, believed deflation is not likely to occur this year, but "it is looming up and next year's price rise may come at a standstill".

Many economists disagree.

The grain price will not fall too much due to the policy support and the government will adjust the prices of public utilities and services, main factors of the CPI, according to the market, said Zhu Baoliang, chief economist with the State Information Center.

The surge of oil price will also help to raise the CPI, said Zhu.

Though the CPI in the first quarter is low by international standards, it alone does not mean the deflation is inevitable, Xie Fuzhan said.

Factors of capital prices and prices of producing materials should also be taken into consideration, Xie said.

Economists believe that the recent reform on China's RMB exchange rate formation mechanism will not make the CPI down too much.

As for China's economy in the mid-and-long run, most economists hold that it has entered a stage of stable growth and the existing problems will have little negative impact.

There are some factors contributing to the stable economic growth: the momentum of the investment growth remains and export plays a more important role in driving the economy, Qiu Xiaohua, deputy director with the National Bureau of Statistics (NBS) said.

Besides, the demand for the upstream products stay high and residents' consumption grow steadily, he said.

It is normal for such a large scale economy as China to grow at between 7 percent and 9 percent, which is also the target for the macro control, Xie said.

The world's leading investment bank Goldman Sachs has adjusted its expectation of China's economic growth this year from the previous 8.8 percent to 9.2 percent.

The bank holds that China's domestic demand is on the rise along with its soaring exports and that the CPI will continue rise mildly to the end of this year.

Source: Xinhua



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