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Red-hot China set to cool a touch in 2006
(Reuters)
Updated: 2006-01-18 07:31
SHIFT TO CONSUMPTION
HSBC economist Qu Hongbin said he too expected another strong year for China
in 2006, with growth likely to be only half a point lower than last year.
But he said China faced an urgent task to tilt growth toward consumption and
away from investment, which he said had accounted for about 60 percent of GDP
growth in the last three years.
Qu told a news conference in Beijing that the government should take the lead
by redirecting its own spending from physical infrastructure to areas like
education and healthcare.
This could help boost China's consumption-to-GDP ratio by 3-4 percentage
points and give consumers a reason to spend more and save less.
"It's a challenging task but that shouldn't be an excuse for China not
starting on it right now," Qu said.
Tax chief Xie said tax revenues grew by 20 percent in 2005 to 3.09 trillion
yuan ($383 billion). Higher revenues could give Beijing more leeway to rebalance
the economy using fiscal policy.
China has already raised income tax thresholds, scrapped the country's
2,600-year-old farm tax and promised to abolish rural school fees to try to put
more money in people's pockets.
Weaning the economy off exports and related investments would reduce China's
vulnerability to the sort of trade tensions highlighted by Yi, the vice commerce
minister.
Critics, particularly in Washington, charge that China's ballooning trade
surplus, which more than tripled to $102 billion in 2005, is a major source of
global economic imbalances and is underpinned by an artificially weak currency.
Some economists expect the trade surplus to drop to about $100 billion this
year, which they say would probably not be enough to reduce U.S. pressure on
Beijing to let the yuan appreciate more quickly.
Since China revalued the yuan by 2.1 percent against the dollar in July and
adopted a managed float, it has let the currency rise 0.54 percent against
the U.S. currency.
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