China's Economy Unlikely to Slow `Sharply' in 2007 (Update1)
By Yanping Li
Nov. 26 (Bloomberg) -- China's economy is unlikely to slow ``sharply'' in 2007 because rising consumer spending and industrial production will underpin growth, said Yao Jingyuan, chief economist of the National Bureau of Statistics.
``The government's policy to boost consumption will show better results next year,'' Yao said in an interview at a business forum in Beijing today. Consumer spending should make a ``greater contribution to economic growth, even though investment may slow amid the government's curbing measures.''
China has raised minimum wages and increased welfare spending to get households to spend more and make the economy less dependent on investment and exports. As it encourages spending by consumers, China has increased interest rates and ordered banks to set aside more money as reserves to damp business investment and clamp down on wasteful factory expansion.
``Growth will continue to be strong, but weaker than this year,'' Federico Bazzoni, head of Asian equities at BNP Paribas SA, said in an interview in Milan on Nov. 24. ``That's good news, as there are fewer risks of overheating. Growth in 2007 will be less than 10 percent.''
China's economic expansion slowed in the third quarter for the first time in a year as lending curbs damped business investment. The economy grew 10.4 percent in the quarter from the same period a year earlier, compared with 11.3 percent in the prior three months.
The world's fourth-largest economy will maintain ``steady and relatively fast growth'' in 2007, Yao said at today's conference, without providing a forecast.
World Bank Forecasts
The World Bank on Nov. 14 raised its estimate for China's 2007 economic growth for a second time in four months. The World Bank said the world's fastest growing major economy may expand 9.6 percent next year after advancing 10.4 percent in 2006.
China's 2006 growth rate may be as high as 10.7 percent, Yao said yesterday. Gross domestic product will rise between 10 percent and 10.7 percent this year, he said in Shanghai.
Consumer spending is gathering pace as curbs on lending and land use slow business investment, helping China's economy skirt a sharp slowdown. Retail sales jumped in October at the fastest pace in almost two years.
China is planning to increase wages for government employees by the end of the year, a move aimed at raising urban incomes and further stoking household spending, Yao said.
The World Bank has urged China to boost spending on healthcare, education and social security to encourage its 1.3 billion citizens to spend rather than putting their money in bank deposits. China's savings rate is double the world average.
Investment Controls
China needs to continue its economic, monetary and administrative measures to control bank lending and fixed-asset investment, Yao said. Growth in investment spending is still ``relatively high,'' he said.
Eight provinces out of the 31 in China had annual investment growth of more than 35 percent at the end of October, and three of those had investment growing faster than 40 percent annually, Yao said.
Investment growth in China's towns and cities slowed to 26.8 percent in the first 10 months from a year earlier, after rising 28.2 percent through September, a government report on Nov. 16 showed.
``Further tightening is expected since the government has failed to control investment growth to its targeted 18 percent for this year,'' said Zhu Baoliang, chief economist at the State Information Center, an affiliate of the country's top planning agency, the National Development and Reform Commission.
``We see next year's economic growth slowing mildly to around 9.5 percent, as investment and trade growth falls after government's curbing measures,'' Zhu said today.