(Reuters, Oct 25, 2006)- China's economic tightening measures will cause growth in 2007 to fall below 10 percent, the first time since 2002, the country's top economic planner said in a report published on Wednesday.

The National Development and Reform Commission (NDRC) recommended that policy makers make greater use of interest rate policy rather than the exchange rate to steer the economy.

It said China could choose from a range of further measures to help temper the country's rapid growth rate, including more interest rate rises and a widening of the yuan's <CNY=CFXS> trading band against the dollar.

But the agency also called for the yuan's exchange rate to be kept basically stable.

"China's macro-economy is heading for a 'soft landing'," the NDRC said in a report published in the official China Securities Journal. "In 2007, there could be an obvious correction in the growth of investment, industries and exports."

The outlook is the latest in a series of recent government forecasts that have projected economic growth will fall below double digits in 2007.

For exports, the report said the U.S. economy was likely to see a correction next year, and that would have a significant impact on China's foreign trade. But an expected fall in oil and other raw materials would help China's economy, the report said.

The NDRC expects the economy to grow 10.6 percent in all of 2006. It is projecting a slowdown to an annual growth rate of 10.3 percent in the fourth quarter of this year, according to the report, from 10.4 percent in the third quarter and 11.3 percent in the second.

China's consumer price index is likely to rise 1 to 2 percent next year, compared with an expected 1.5 percent increase this year, the NDRC said.

The China Securities Journal, in a front-page editorial, said it was too early for Beijing to relax the controls it has introduced to prevent the economy from overheating.

This was because China's trade surplus, the root cause of excess liquidity flooding the banking system, was likely to persist, the paper said.

It argued that, to absorb the spare cash, a further rise in banks' reserve requirements would be more effective than a combination of higher interest rates and increased central bank bill issuance.

The paper quoted Zhu Baoliang, chief economist of the State Information Center, a government think-tank, as agreeing that a rebound in investment growth remained a danger. Zhu said the trade surplus in 2007 was likely to remain a high $150 billion.

Source:Reuters
tag:China economy