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UN report: US decline could moderate China’s economic growth

China might see a “significant dent” in its economic growth rate, if the US economy slides into a recession, said the United Nations in a report released on Wednesday.

China is expected to grow at a robust pace of 10% in 2008, moderating from the 11.4% growth estimated for 2007, said the report entitled World Economic Situation and Prospects 2008. The annual report also considered a more pessimistic scenario under which housing prices in the United States make a more significant dive and push the US economy into a recession in 2008. Should this happen, economic growth in China would drop below 8% in 2008. In the baseline forecast, the UN’s prospects for the Chinese economy in 2008 remain positive overall. Fixed investment continues to be a key growth driver. Private consumption, which was relatively weak in the past compared with other components of GDP, will strengthen due to a strong growth in wages and the positive wealth effects from the significant rise in stock prices over the past two years.

The UN report said the weight of the Chinese economy in the world has been steadily increasing. China contributed about 17% to global growth in 2007, about the same as the US. China’s trade with the rest of the world has been growing three times as fast as the world average since its accession to the WTO in 2001. If it keeps up the momentum, China will become the largest exporting economy in 2009. China’s rapid industrialization has generated strong spill-over effects on the economic development of other developing countries, contributing directly to their exceptionally strong growth performance in recent years. China’s increased demand for raw materials has sustained the upward trend in primary commodity prices, which determine an important part of export revenues of many developing countries. For instance, China’s import demand for iron ore increased by more than 40%, copper by more than 100% and edible vegetable oils by about 80% during 2007.

China has also stepped up its efforts to strengthen South-South economic cooperation through trade agreements, increased direct foreign investment, and development assistance and debt relief, in particular with the least developed countries. For example, China has disbursed multi-billion US dollars in preferential loans to encourage Chinese enterprises to invest in ASEAN countries, and created a multi-billion dollars China-Africa Development Fund to stimulate Chinese investment in Africa, the report said. China also canceled $1.47 billion of African debt and promised to double its assistance to Africa in 2009. China’s aid is targeted mainly at energy, telecommunications and transportation, which have by and large been neglected by the traditional, Organization for Economic Cooperation and Development (OECD) country donors.

The report, however, also pointed out that China’s financial support is highly concentrated in a small number of oil-and-mineral-exporting countries, and most of the aid is provided in kind by Chinese companies, using inputs of Chinese origin, including labor. China’s yuan (RMB) appreciated by more than 6% against the US dollar during 2007, but China’s surplus in its current account surged further, to about $300 billion. With a surplus in both its current account and capital account, China has accumulated more than $1.4 trillion in official foreign reserves. The UN report said China’s large current account surplus should be seen in the broader context of the problem of the global macroeconomic imbalances involving the huge external deficit of the US counterbalanced by surpluses elsewhere, including China. These imbalances can not be resolved unilaterally or bilaterally.

The report urged more efforts to advance the ongoing multilateral consultations sponsored by the International Monetary Fund, which involve China, the Euro area, Japan, Saudi Arabia and the US. The consultations are focused on narrowing global current-account imbalances while maintaining robust growth. Under this framework, along with more active policies in other major surplus and deficit economies, China could make a great contribution to rebalancing the global economy, through policies to create broader-based domestic demand, particularly in the areas of expanding social security, improving health and education services, and strengthening rural income, the United Nations said in the report.

 

The annual report is a joint product of UN Department of Economic and Social Affairs, UN Conference on Trade and Development and the five UN regional commissions. It provides an overview of recent global economic performance and short-term prospects for the world economy and of some key global economic policy and development issues. (people.com.cn)