China's economy would moderate but remain robust in 2008 with a growth rate of 10.7 percent, providing a cushion against the expected international downturn, according to a forecast issued by the United Nations commission in Beijing on Thursday.
"Investment continues to be the main driver of growth, remaining resilient despite government cooling measures and with support from low real interest rates," said a report released by the UN Economic and Social Commission for Asia and the Pacific (UNESCAP).
"A slowdown in exports and the country's efforts to cool the economy are the main reasons for the moderation," it said.
Other factors expected to underpin China's growth include domestic demand, increasing spending power of rural consumers and rising consumption through higher government spending on social welfare.
Official statistics show China's gross domestic product growth accelerated to 11.4 percent in 2007, the fastest for 13 years.
The report said the U.S. sub-prime mortgage crisis is not expected to have a strong impact on growth in China.
"In a worst case scenario where the U.S. economy goes into recession, the impact on China will not be as great as on other Asia-Pacific countries. Due to its blistering pace, China's growth will remain resilient, but will slow," said Shuvojit Banerjee, a senior expert with the UNESCAP.
According to the report, China's increasing exports to the European Union are expected to compensate for a steady fall in exports to the United States, China's second largest export market. China has also witnessed a boom in trade with Africa.
It said Chinese and other Asia-Pacific investors are playing a key role in supporting developed countries through the turmoil. Sovereign wealth funds and state investment institutions from the region have bolstered weakened banking sectors in the United States and the Europe.
The report said China is facing an increasing challenge from inflation. The chief inflationary concerns lie in higher international oil and food prices. "Rising food prices are a bigger inflationary concern than oil prices because food accounts for a far higher proportion of consumer spending. Food price inflation particularly hits low income households."
The report also warned that the fast growth is coming at an increasing cost to the environment. It said the destabilizing effect of growth on the environment is becoming more apparent. Air pollution, especially in large cities, is increasing the incidence of lung disease.