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State think tank forecasts '03 GDP growth at 8.3%
( 2003-09-25 14:48) (Dow Jones)

China's economy is expected to grow at a brisk pace this year despite the outbreak of SARS and the war in Iraq, according to the forecast of the State Information Center.

The State Information Center, a think tank under the National Development and Reform Commission, said in a report Thursday that it expects gross domestic product to grow around 8.3% this year.

GDP expanded by 8% in 2002. China's economy has "successfully overcome the outbreak of SARS and the war in Iraq" and has maintained its fast-paced growth, the State Information Center said in the report, which was published in the China Securities Journal.

In the report, there were three growth scenarios for next year and three GDP growth rates - 8%, 8.5%, and 9% - and the think tank concluded that a "suitable" growth rate for 2004 would be around 8.5%.

Also, the center expects fixed asset investment to grow 20% this year and M2 growth to come in at 19.5% at the year-end.

The center forecast retail sales to rise 8.6% this year, compared with an 8.8% rise last year. It attributed the slight slowing in growth to the SARS outbreak.

Imports would increase by 36.5% this year, a jump from last year's increase of 21.2%, while exports would rise 27.4% this year, compared with 22.3% last year.

The rise in imports, which consist largely of raw material and machinery, would mean a sharp decrease in the trade surplus this year to an estimated US$11.8 billion from US$30.35 billion last year, the center said.

The think tank said there was little danger of inflation, as consumption, which accounts for about 60% of China's GDP, was increasing at a gradual pace, adding that overall investment wasn't yet excessive.

However, it warned that some "unreasonable" investments were starting to take place, led mainly by local governments. In the first seven months, fixed asset investment by the central government fell by 8.9% on year, while investments by local governments rose by 41.6%.

"As a 'tacit rule,' GDP growth is actually used as a way to evaluate local government officials, and that motivates unreasonable investments," said the think tank, adding that if such investments continue it would result in " overheating."

It said local governments were often the ones adding to the risk of overheating in the automobile and steel sectors.

On next year's economic growth, the center said it thought 8.5% would be a suitable increase, as such a rate would help prolong the expansion period of China's economy. At that pace, the main driver for the economy would be a rise in domestic demand and "international resources," rather than a major shift in macro economic policy.

It also suggested that at that growth rate the government should issue about 100 billion yuan (US$1=CNY8.28) worth of construction bonds, and target an increase in broad M2 money supply of about 17% next year. Fixed asset investments growth would be about 16%, and retail sales would grow at a rate of about 9.8% in 2004.

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