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ADB raises China's economic growth forecast to 10.4%

(Xinhua)
Updated: 2006-09-06 15:05

Strong growth in investment and foreign trade will boost China's economic growth rate for 2006 to 10.4 percent, the Asian Development Bank (ADB) said Wednesday in a major new report.
 
"The economy posted very rapid growth in the first half with fixed-asset investments, exports, and imports all rising significantly from a year earlier," said ADB chief economist Ifzal Ali at the launch of Asian Development Outlook 2006 Update.

"Even with an interest rate increase in mid-August that followed earlier monetary and administrative tightening measures, we expect second-half cooling to be modest. Our concern is that if the current investment boom continues, it could result in chronic overcapacity," he said.

China's economy grew by a faster-than-expected 10.9 percent in the first half, building on 10.2 percent growth in 2005, according to China's National Bureau of Statistics.

The 2006 full-year prediction for China represents a significant upward revision of the 9.5 percent growth forecast in April, when ADB launched its flagship annual forecasting publication, Asian Development Outlook (ADO) 2006.

ADO Update forecasts overall growth for the 43 countries of developing Asia will be 7.7 percent in 2006, up from the 7.2 percent forecast in April.

Investment spearheaded China's economic growth in the first half of 2006, with fixed-asset investment surging 29.8 percent year-on-year, well above the official target. Exports grew 25.2 percent over the previous year, while imports rose 21.3 percent, resulting in a 61.4 billion U.S. dollar trade surplus for the first half.

The bank said that the acceleration in growth in the first half has heightened concerns about overcapacity in some industries and the possibility of a painful contraction of economic activity.

The Chinese authorities have tried various tightening initiatives to cool the economy, including two increases in the benchmark lending interest rate and restrictions on property investment.

The central bank also has imposed some direct controls on lending and adopted measures to absorb bank liquidity.

It said statements by senior Chinese leaders hint at more tightening measures to come, but the magnitude and timing of these measures remain uncertain.