Premier Wen Jiabao referred to an 8% growth rate for 2006 during his NPC address, and even this figure is considerably lower than those being cited by government-controlled think tanks. The State Information Center predicted a slowdown in GDP growth from 9.6% in the first quarter to 9.4% in the second quarter. This comes after 2005 and 2004 growth rates of 9.9% and 10.1%, respectively.
The center said the principal driver of this growth would continue to be investment. It broke down its projected 24% first quarter investment growth into a variety of sectors with urban investment expected to rise 25.5% and real estate investment 19.2%. Overall investment growth for April through June is expected to fall to 22%.
Given that fixed-asset investment rose 26.2% year-on-year in 2004 and 25.7% in 2005 over the 2004 figure, these projections suggest China's economy is slowly shifting away from investment-led growth.
However, experts continue to express concern at the slow pace of this movement. Last month, National Development and Reform Commission Minister Ma Kai became the latest person to weigh in on the debate, warning that an over-reliance on investment-led growth could have a potential rebound effect on the economy.
According to state media reports, Ma told officials from six ministries that further efforts were needed to slow the ever-rising construction activity taking place in China's cities. The government took measures to curb investment as early as 2004 but it has failed to have the desired effect and overcapacity is already being experienced in the steel, cement and aluminum markets. In 2005, fixed-asset investment rose 25.7% year-on-year, which represented only a marginal fall on the 26.6% growth rate of 2004.
Ma said that unless the government took action to shift the economic focus towards domestic consumption, China would be placing a dangerous strain on its resources, both natural and human. The impact would imprint itself on the public through a wave of company closures, leaving people jobless and banks with a raft of unrecoverable industrial debts on their books.
Wen says no to revaluation
Premier Wen Jiabao effectively put an end to rumors that China would boost the value of its currency ahead of President Hu Jintao's visit to the US this month by ruling out any one-off adjustments in the yuan. "Based on the current system, the [yuan] has room and ability to move up or down on its own in accordance with market forces," he said. The US Treasury will make its semi-annual report on currency manipulation on April 15 and officials are said to have sounded out investors on the potential impact of branding China an exchange rate manipulator. The yuan has gained less than 1% against the dollar since Beijing ended its decade-old dollar peg on July 21 and revalued the currency by 2.1%.
Capital outflow freedom
A State Administration of Foreign Exchange official said the qualified domestic institutional investor program would be revived through an easing of restrictions on capital outflows and the transition to a "basically convertible" yuan for capital account transactions. Zou Lin, who is responsible for China's capital account at SAFE, told the South China Morning Post that the move would let large institutional investors such as mutual funds diversify into offshore bonds and equities.
Accounting rules compliance
China agreed to adopt a form of the International Financial Reporting Standards used in almost 100 countries including the EU member states. The decision was applauded by international accountants in Beijing at a ceremony at the Great Hall of the People. China will not adopt the IFRS in every respect, but rather absorb its principles and translate them into its own Chinese Accounting Standards. The move will increase confidence in the quality of financial information, but presents difficulties for local accounting firms already facing competition from foreign accounting houses.
T-bill issue announced
The Ministry of Finance said it would issue US$7.5 billion in certificate treasury bonds with terms of maturity of up to five years, the first batch of its kind to be issued this year. The T-bonds include US$5.21 billion worth of those with a term of maturity of three years and an annual interest rate of 3.14% and US$2.2 billion with a five-year maturity at 3.49% a year. Interest will be calculated from the date of purchase and paid only on or after the date of maturity.
Rigid growth targets relaxed
Only two numerical economic targets were included in the latest Five-Year Plan as part of a bid to remove the precise projections characteristic of the decades-old planning system. It is hoped the reform will allow market forces to play a greater role in economic development. The two targets in question were the ongoing promise to double per capita gross domestic product in the 10 years to 2010 and a pledge to reduce energy consumption per unit of output within five years.
Rise in retail spending
Retail sales rose 12.5% to US$169 billion during the first two months of the year, the National Bureau of Statistics said. Figures for both months were released together to avoid distortions caused by a spending boom during the Spring Festival holiday, which fell in January this year and February last year. January spending increased 15.5% before returning to a more normal 9.4% growth rate in February. Telecom equipment sales, including mobile phones, rose 25% on the first two months of 2005, while clothing, household appliances and cosmetics all increased 17%.
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