China's economy will lose momentum marginally, with the gross domestic product (GDP) projected to grow at a rate of about 8 percent in 2006, according to the Economic and Social Commission for Asia and the Pacific (ESCAP).
ESCAP predicted in its Economic and Social Survey of Asia and the Pacific 2006, which was publicized on Thursday, that robust growth in China has been sustained by three broad factors: surging net exports, domestic investment and, increasingly, domestic consumption.
The survey said that China's export growth is expected to taper off slightly in 2006. Electronics exports are likely to maintain their recovery, which began late in 2005. Textile and clothing exports will be constrained by limits agreed with the United States and the European Union.
According to the survey, the 2.1 percent revaluation of Renminbi against US dollar last year could theoretically hurt China's exports, employment and GDP growth, but any negative impact is likely to be negligible in view of the strong competitive advantage China enjoys.
Owing to China's progressively market-based financial system and the increased autonomy enjoyed by companies and local authorities, investment demand, whether for real estate or manufacturing, could continue to increase in 2006 despite administrative controls, said the survey.
China's industrial sector has undergone a massive transformation in the recent past. The nation is expected in the short term to move away from traditional resource-based, energy-intensive manufacturing activities toward more knowledge-based industries, with a greater emphasis on employment creation and increasing pace for the private sector.
Improving the efficiency of capital is also high on agenda, with more equitable sharing of the benefits of growth between the dynamic coastal belt and the interior and between the urban and rural areas generally.
China is emerging as a significant outward investor with its efforts to secure long-term access to foreign energy and mining assets, to secure new markets and to acquire technologies and skills, said the survey.
On the other hand, foreign direct investment in China is likely to grow moderately or even slow further as profit opportunities diminish with greater competition and increasing labor costs.
Savings as a percentage of GDP may soon exceed 50 percent of GDP, according to the survey.