China has announced it is aiming to slow economic growth this year to 8%. Official growth was 9.5% in 2004, an eight year high. This helped sustain global growth and fueled a surge in commodity prices, but there are doubts such a pace is sustainable. According to Bloomberg, China's Premier Wen Jiabao announced plans to slow growth:
..by clamping down on urban infrastructure projects and spending more on lagging rural areas. The government will maintain curbs on investment in industries including steel and property and cut taxes on farmers, Wen said in his annual work report to China's parliament.
The 2005 budget forecast slower growth in government spending and fewer sales of bonds for infrastructure. Economic controls ``cannot be loosened,'' Wen said. ``Maintaining stable economic development will be a key job for the government.''
...Wen said the tightening measures implemented last year had been effective as fixed investments and loan growth have slowed. Still, investment in China remains relatively high, while consumption is low, he said. China's investment in factories, roads and other fixed assets rose 25.8 percent last year.
The China Daily reported that the emphasis was on improving efficiency and curbing public investment:
Wu Jinglian, a renowned economist and also a CPPCC member, told China Daily that the quality of growth is the key. "What's more important is that we should achieve growth through improving efficiency, rather than relying on investment."
To this end, curbing soaring investment is a priority for the central government which vowed to strengthen and improve macro controls. After seven years of proactive fiscal policy, prudent fiscal and monetary policies will be implemented this year.
A separate news report cites a Der Spiegel interview with Pan Yue, vice director of the State Environmental Protection Administration (SEPA), a new body that's been assertive in tackling industrial pollution. According to Reuters, Pan believed that China's strong economic growth could soon be endangered because of its damage to the environment. He was very open about the severity of China's pollution problems:
...air and water pollution were already costing China between 8 and 15 percent of its gross domestic product, although he did not explain what data had been used to calculate that figure. "The (economic) miracle will soon be over because the environment won't be able to bear it much longer," he said. "Acid rain already comes down on a third of China's territory, half of the water in our seven largest rivers is completely unusable and a quarter of the population has no access to clean drinking water."
The SEPA vice director said China used seven times more natural resources than Japan to produce $10,000 worth of goods, six times more than the United States and even three times more than India, which he said was "especially embarrassing".
"This cannot continue and it cannot be allowed to continue," Pan said. He added that aside from the environmental costs, the pollution was causing health problems. He said 70 to 80 percent of the cancer fatalities in Beijing were caused by pollution.
UPDATE: Andy Mukherjee at Bloomberg reports view from market economists that China's economy may overshoot 8% growth target:
It's worth nothing that with all the administrative controls on investment, the $1.4 trillion economy grew at its fastest pace in eight years in 2004. Why should more of the same make 2005 any different?
UPDATE 2: Simon World, an Aussie Hong Kong-based blogger, warns that a major problem for the Premier and the central Government is the lack of reliable economic data:
Statistics chief Li Deshui yesterday lashed out at local authorities for inflating their GDP growth, noting that the sum of figures submitted by the 31 provinces was 3.9% higher than the national figure compiled by his bureau last year...
UPDATE 3: According to a 17 March 2005 Bloomberg report by Nerys Avery in Beijing, Goldman Sachs and other banks "have raised their 2005 economic growth forecasts for China after reports showed exports and industrial production rose faster than expected in the first two months of the year. "
Goldman lifted its forecast to 8.8 percent from 8.1 percent, Credit Suisse First Boston raised its projection to 8.6 percent from 7.3 percent and UBS AG upgraded its estimate to 9.6 percent from 8.8 percent, according to research published by the banks.
``Data from the fourth quarter of 2004 and the first two months of this year indicate sequential growth momentum in China has firmed up, and on the margin, external demand has been the main source of growth acceleration,'' Goldman economist Liang Hong said in a research note published today. ``In addition, there are signs that private consumption has become perkier.''
China's exports rose 37 percent in the first two months of the year, industrial production increased 17 percent and retail sales gained 14 percent, official figures show. Overseas sales were expected to climb 33 percent and production was forecast to expand 15 percent, according to Bloomberg surveys published ahead of the data.
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