UBS: China's economy is not overheated

Updated: 2007-12-01 09:33

Investors' concerns over a growth "hangover" from domestic over-investment are unwarranted, said a UBS report released earlier this week about China's macroeconomic trends in 2008.

Related readings:

 NDRC: China economy shows no sign of overheating
 China economy remains in 'good shape'
 ADB: China economy to slow moderately
 China economy likely to cool

Jonathan Anderson, UBS' senior analyst on global emerging markets, made this comment in "The 2008 China Macro Almanac" amid worries that the country's economy is set to overheat, with its double-digit gross domestic product (GDP) and a monthly consumer price index (CPI) of more than six percent.

"The current high headline CPI inflation rate is mostly due to temporary supply-related spikes in a few goods categories," said the report, adding that the CPI would fall throughout the first half of 2008.

The optimism of the report comes from the buoyant margins in most industrial and service sectors. While profits dropped sharply in heavy industrial firms between 2004 and 2006, they have already recovered visibly over the past 12 months, the report said.

The report anticipated the country would continue its double-digit growth despite a tiny slowdown of 0.6 percent in 2008 from more than 11 percent this year, which mainly came from falling net exports.

A potential recession in the United States could be a major external risk for Chinese economy, but past experience has shown that domestic growth is "insulated from even the most aggressive export shocks", said the report.

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