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| China to Continue Strong Growth: Goldman Sachs |
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A leading US investment bank predicts China's economy will continue its impressive growth over the next couple of years as the country's consumers start to spend more. Goldman Sachs said its upbeat forecast for the Chinese economy for 2007 and 2008 is "partially due to an expected improvement in global demand, but also and more importantly, led by continued solid growth in domestic demand." The report forecasts China's gross domestic product will grow by 9.8 percent in 2007, and 10 percent in 2008. "If our forecast materializes, this would have been the longest and least volatile cycle China has enjoyed since 1978," the report says. It notes China is now in the middle of its third productivity boom since1978, when China started its reform and opening-up drive. Thanks to the profound opening-up and deregulation efforts made by the government since China's entry into the World Trade Organization, the country's real economy has become much more flexible and market-oriented compared with the last cyclical boom more than 10 years ago, the report says. "The significant decline of the state-owned enterprise's share in production and employment has arguably led to much more flexible products and labor markets, contributing to a higher trend growth rate as well," the report adds. It says China's macro policy management has improved substantially, mainly attributable to a central bank that now commands a much better understanding of macro issues and has a broader range of tools to conduct monetary policy. "Even though quantity rationing, or so-called administrative tools, continue to be heavily relied on to rein in inflationary pressures, the central bank has managed to 'stay on the curve' with much fewer hiccups than during past cycles, thereby helping reduce the volatility of the cycle," the report says. Goldman Sachs says its macro forecasts for 2007-2008 are based on a policy trajectory that involves two 27-basis-point interest rate hikes (for both the deposit and lending rates), and a 5.7 percent appreciation of Renminbi against the US dollars in 2007, and one 27 basis point rate hike plus a 5.3 percent yuan appreciation in 2008. "We believe these adjustments are likely to be only interim steps towards a neutral policy stance, and therefore, risks for growth in the next 2-3 years will likely continue to be on the upside," the report says. China's National Bureau of Statistics has put the country's GDP growth in the first three quarters of 2006 at 10.7 percent. Various institutions including the central bank have forecast a growth rate of over 10 percent for the whole year 2006. (Xinhua News Agency December 5, 2006) |
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