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China to 'cool down in 2004'
(CNN) -- China's super-fast growth rate is likely to slow sharply next year as exports and inward investment cool down, an expert on the Chinese economy says. Morgan Stanley's Hong Kong-based chief economist Andy Xie said in a commentary Monday that while China is now growing at its fastest pace in 10 years, a slowdown is ahead. His comments follow the release last Friday of official figures by China's State Statistical Bureau showing gross domestic product in the world's sixth-largest economy rose 9.1 percent in the third quarter compared with a year earlier. The bureau also said the figures showed GDP grew at an annual 8.5 percent for the first nine months. Xie pointed to data showing a surge in China's electricity consumption, which has grown at 14.9 percent on average for the past five quarters, versus an average of 7.9 percent in the 1990s. But Xie said he believed a slowdown was ahead. China would revert to "normal" growth rates next year, with exports and fixed investment likely to see their growth rates halved. Morgan Stanley is forecasting growth of 7.8 percent in 2004, and has lifted its 2003 forecast to 8.5 percent following release of the latest GDP data. Xie said China's exports, which have been growing at 30 percent annually, could ease back to 15 percent growth in 2004 as overseas direct investment decelerates from a very high base. "This should not be surprising after the exceptionally strong growth of the past three years, following China's entry into the WTO," Xie noted. Massive inflows
China has seen massive inflows of overseas investment since it joined the World Trade Organization at the end of 2001. In the first six months of 2003 it received more than $30 billion of overseas investment, up 34 percent year on year and making it by far the biggest target for investors looking to relocate production. But Xie believes the "one-time jump" from WTO entry is winding down. Xie said that cyclically, the global economy may have peaked in the third quarter of this year, because of the boost from a post-SARS rebound in Asia and a 6 percent-plus growth rate in the United States. The State Statistical Bureau's deputy director, Qiu Xiaohua, told a press conference last Friday that China's GDP for the first three quarters was more than 7.9 trillion yuan ($956.6 billion). (Full story) While the figures confirmed China's status as among the fastest-growing economies in the world, they have also raised concerns about overheating and the need to cool the red-hot property sector. Another concern is U.S. pressure on China to revalue its currency. The United States believes the yuan, which is pegged at about 8.28 to the dollar, is too cheap and that this gives China an unfair competitive advantage with its exports. Observers such as Xie say, however, that the peg is probably still the most appropriate currency policy for China. Xie said recently that while China was becoming the world's factory, prices for tradable goods were still determined in the world's largest and most open market, the United States. He said the yuan peg removed currency risk for suppliers based in China. U.S. officials at the Asia Pacific Economic Cooperation (APEC) meeting in Bangkok said late Sunday that China would consider a U.S. request to allow its currency to rise and fall with international markets, but President Hu Jintao says the issue needs more study. (Full story) Hu has said that any early move to revalue the yuan could lead to instability in China and across Asian financial markets.
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