Attempts to put the brakes on rocketing steel and real estate markets by reducing lending saw a slowdown in the rate of increase in fixed asset investment, but the reduction was still only a small one: 26.1% in the "first three quarters from 27.7% in 2004.
Nevertheless, Tang Xu, director-general the People's Bank of China, was optimistic about the country's long-term position, saying that China was reaching a level of sustainable growth.
"Inflation has slowed and investment growth has also slowed," he said in an interview with Reuters. "The economy has entered a reasonable range. We believe growth around 9% is reasonable."
The State Council's Development Re-search Center expects GDP growth to slow between 8.5% and 9% in 2006, a theory that is supported by foreign experts. In its China Quarterly Update, the World Bank predicted a growth rate of 9.3% for 2005, moderating to 8.7% the following year.
Meanwhile, the Purchasing Managers? Index for China, run by investment bank CLSA, fell to 50.1 in October from 50.9 in September, the lowest in the year-and-a half history of the survey.
The index is designed to gauge the health of China's manufacturing industry and CLSA points to rising input prices against falling output prices and shrinking employment as factors contributing to the impending malaise. "In reality, the conditions facing Chinese manufacturers continue to deteriorate," said Eric Fishwick, deputy chief economist at CLSA. "Orders from both China and overseas are slowing and, as manufacturers are having to keep tight control of product inventory, this is resulting in a sharp slowdown in production growth."
According to sources cited by the South China Morning Post, the National Reform and Development Commission has an economic growth target of an average 7.5% over the next five years.
At the end of the fifth plenum of the 16th Central Committee of the Communist Party in October, a goal was set to double China's 2000 GDP per capita by 2010, a much more ambitious aim than the target of doubling GDP between 2000 and 2010 set out in the 2001 to 2005 five-year plan.
To achieve this new target, an annual average growth rate of 7.18% is required.
Greater currency movement sought
An economist for the People's Bank of China monetary policy advisory committee urged for greater movement in the yuan's exchange rate. Speaking in an interview with the Financial Times, Yu Yongding, who is also a senior economist at the Chinese Academy of Sciences, said such enforced stability sent local companies the wrong message. "We should allow a bigger band and more flexibility," he said. The yuan is allowed to move 0.3% against the dollar each day. After three months it has risen 0.34%.
Inflation tame as M2 rises 18%
China's money supply (M2) was up 18% at the end of October year-on-year but inflation remained under control, according to official statistics. The consumer price index rose 1.2% in October from a year earlier and, although China's CPI rose 1.9% in the January-October period, this is still lower than the central bank's target rate for 2005, which was adjusted down to 2% last month from between 3% and 3.5%.
Retail sales, fixed asset investment up
China's retail sales rose to a record level in October, increasing 12.8% from a year earlier to US$72 billion, after rising 12.7% in September, Bloomberg reported. Industrial production was reported to have risen 16.3% in October and fixed-asset investment in China's towns and cities were up 27.2% in October from a year earlier.
Fitch boosts China rating
China's debt ratings were raised one level by Fitch Ratings because of surging foreign-exchange reserves and fewer bad loans at banks. The country's long-term foreign currency rating was raised to A, the sixth-highest grade, from A-minus, putting it on a par with Chile, Greece and South Korea. Fitch also lifted China's long-term local currency rating to A-plus from A. China's foreign-exchange reserves rose 50% by the end of September from a year earlier, to a record US$769 billion. Fitch expects the reserves to top US$1 trillion in 2007, as China overtakes Japan as the world's largest holder of foreign-currency assets.
Investor dollar confidence falls
Confidence in US dollar dominated assets has "weakened significantly," and the willingness to sell US dollars has grown, according to a People's Bank of China survey. The central bank study found 37% of respondents were selling dollars against 33.5% who were saving them. The survey also found that Chinese residents sold dollars for RMB after the July 21 revaluation despite Beijing raising the US dollar deposit interest rates three times to dampen expectations of a rising yuan.
New law lowers tax burden on poor
In an attempt to address the widening wealth gap, the Chinese government increased the salary level at which people must start paying income tax to US$198 a month from US$98 a month. The US$98 level was introduced in 1994 and affected only 1% of the population; now, about 60% earn in excess of this amount. The policy could cost the government as much as US$2.5 billion a year in lost tax revenue.
Equity deals to soar
Private equity deals in China, including investments and mergers that later result in initial public offerings, will grow by an annual 20% to 30% for the next five years, said Chang Sun, chairman of the China Venture Capital Association. More than 80% of the IPOs to come out of China have taken place in the last three years and Chang expects this deal flow to grow significantly in the years ahead now that firms have started to turn in profits.