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ADB sees China's economy expanding 8.5% this year.

BEIJING, Feb. 3 Kyodo

The Asian Development Bank's chief economist in Beijing said Thursday he expects China's economic growth to slow to 8.5 percent this year, down a percentage point from 2004.

As government reductions in public spending to cool overheating take effects over the next few months or quarters, the economy should slow, Tang Min said at a press briefing.

State sector overheating, an issue the development bank brought to China's attention last year, shows signs of easing because the growth rate in fixed asset investment declined from 43 percent from the first quarter to about 25 percent at the end of 2004, Tang said.

On Jan. 25, the National Bureau of Statistics said the economy grew 9.5 percent in 2004, to 13.65 trillion yuan ($1.65 trillion), in part because of investments in energy and agriculture.

The Manila-based ADB, which has lent money for 108 infrastructure and poverty alleviation projects in China since 1986, believes government spending on construction projects could cause overheating, which could spark inflation.

China overheated in 1993, causing inflation that lasted until the Asian economic crisis of 1997.

And overheating remains a threat, Tang said.

''Overheating is still a problem despite the government having made an effort,'' he said. ''We recommend the government remain cautious in this area. The 9.5 growth surprised us a little bit, as we expected around 9 percent, so China is still in fast growth.''

Whether growth slows to 8.5 percent depends on monetary policies for the year, Tang said.

He lauded the drop in fixed asset investments and also suggested China strengthen policies to raise incomes in relatively poor rural areas.

In 2004, Chinese leaders tried to cool the economy by raising interest rates, curbing unwanted fixed-asset investment projects and issuing tighter restrictions on new projects in overheated industries such as property and steel.
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Publication:Asian Economic News
Date:Feb 7, 2005
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