CHINA / National

WB: China's economy likely to slow down
By Zheng Lifei (China Daily)
Updated: 2006-08-16 05:37

The country's economy is likely to slow down slightly during the rest of the year, the World Bank said yesterday, pointing to the central government's moves to rein in growth.

Gross domestic product (GDP) may grow 10.4 per cent for the whole of 2006 as recent macroeconomic control measures are likely to slow down the sizzling economy to under 10 per cent in the second half of the year, the bank said in its latest quarterly report.

A man works on the scaffold at a construction site in Beijing in this July 27, 2006 photo. China's economy is likely to slow slightly over the rest of the year, the World Bank said on Tuesday. [Reuters]

The economy grew at a decade-high 11.3 per cent in the second quarter, the fastest since 1996, raising fears among economists that the economy is overheating and prompting the government to take a slew of macro control measures. GDP expanded by 10.9 per cent in the first half.

But despite the tightening measures, the World Bank said that investment growth, which grew 31 per cent in the second quarter, would remain strong in the second half.

Domestic consumer spending "should continue to benefit from rising incomes, particularly in urban areas," the bank said.

The Washington-based international financial organization also projected "a gradual slowdown in exports to continue."

"This scenario would imply a slight slowdown in GDP growth to under 10 per cent in the second half, resulting in growth of 10.4 per cent for the year as a whole and 9.3 per cent in 2007."

The central bank raised the one-year benchmark lending rate by 27 base points to 5.85 per cent on April 27 and has since increased banks' required reserves ratio twice, with the latest taking effect yesterday.

The reserves ratio is the proportion of deposits a bank is required to have with the central bank as a way of managing lending capacity.

In addition, the government has also recently taken a string of administrative measures against some sectors, such as imposing restrictions on land use and foreigners buying property in the country, in a bid to cool the housing market.

Urban property prices rose 5.7 per cent last month from a year earlier a touch below the 5.8 per cent in June according to official figures released yesterday.

The World Bank, however, played down concerns of an overheating economy. "The outlook for China's economy remains favourable. With production capacity continuing to expand in line with demand, inflation low, and the current account in surplus, the main policy concern is not general overheating," the bank said.

"There is no generalized overheating at the moment," said Bert Hofman, the World Bank's lead economist for China. "What we are concerned about is the efficiency of a lot of this investment. If it's not efficient, it will lead to overcapacity in some sectors and an increase in non-performing loans in banks."

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