China growing strongly, risks manageable : OECD report

BEIJING Fri Mar 22, 2013 7:09am EDT

1 of 2. A woman looks for goods at a supermarket in Beijing March 22, 2013.

Credit: Reuters/Kim Kyung-Hoon

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BEIJING (Reuters) - China's economy should expand by 8.5 percent in 2013 and more in 2014, with inflation and export demand the biggest near term risks to growth that should average 8 percent in this decade at current rates of investment and reform, the OECD said on Friday.

The Organisation for Economic Co-operation and Development (OECD) offered one of the most upbeat assessments of China's prospects of any of the major multilateral institutions in its new Economic Survey of China, which was unveiled in Beijing.

The 161-page survey, the first such report from the Paris-based OECD since 2010, was particularly optimistic about the outlook for investment spending in the world's No.2 economy.

It pointed to substantial deficits in rail and road capacity relative to other major economies at similar stages of development, as well as to sub-standard housing as offering scope for more profitable spending on infrastructure.

"The level of investment in the private sector is well-founded by the rates of return, and in infrastructure, we still think there are tremendous needs," Richard Herd, the head of the OECD's China desk, told a media conference.

"We're positive on investment in the sense that we see rates of return remaining quite high," he added.

Many private sector economists believe China's GDP growth by the end of this decade will be nearer 5 percent than the 10 percent average annual rate it has hit for the last 30 years.

China's official growth target for 2013 is 7.5 percent and 7 percent on average in the five-year plan that runs to 2015.

Growth slowed to a 13-year low of 7.8 percent in 2012, with weak demand in the European Union and the United States -- the two biggest export customers -- the main drag on growth.

"Recent OECD simulations suggest that China could maintain high, though gradually easing, growth during the current decade, averaging 8 percent in per capita terms," the report said, adding that the country was on course to become the world's largest economy by 2016, adjusted for price differences.

The OECD said soggy export demand was the biggest potential external risk to its 2013 growth forecast and a pick-up in inflation was the biggest domestic risk factor to maintaining a policy mix that has underpinned an economic recovery in China that took hold in the fourth quarter of 2012.

Herd said official economic data so far in the first quarter of 2013 supported the OECD's above-consensus growth call, with domestic consumption -- key to Beijing's economic rebalancing strategy to wean the economy off of exports and investment -- faring well with wages ticking higher and inflation subdued.

He played down the concerns about heavily-indebted local governments, saying that in the overall context of a central government with big cash reserves, large fiscal flexibility and the potential for Beijing to take direct ownership of troubled local government assets, China's financial system was strong enough to easily absorb potential trouble.

The report, which focused on the growth prospects and risks offered by China's renewed urbanization drive as well as relations between local and central governments and pollution, said that further economic reform was crucial to ensure growth was sustained longer term.

"To sustain vigorous and socially inclusive growth over the longer run, renewed reform momentum is required," it said, pointing to financial market liberalization and increased competition in the services sector as key areas of focus.

(Reporting by Nick Edwards; editing by Jonathan Standing)

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Comments (1)
MikeBarnett wrote:
Reuters predicted 8% in a previous article; the OECD predicts 8.5%; and my partners and I predict 9% GDP growth for China in 2013. China is growing internally. It raised the minimum income tax deduction 75%, reinstated old age pensions, and began building 46 million low cost housing units that could house 138 million Chinese or 10% of its population when they are completed in 2016. More Chinese move to cities to earn higher wages, so the infrastructure becomes useful and creates more profits, wages, and taxes. The last three items help the government maintain its surpluses for investment.

China has created bigger markets in developing countries with its FDIs in infrastructure that have helped these markets to rise and make up for declines in trade with the US and EU. The West has reported on emerging markets, but it has failed to make FDIs in infrastructure in these nations that will make them more profitable for sales by western companies. In addition, the West fights islam to support Israel, and western wars in third world countries make the West unpopular in most of the developing world that suffered from western imperialism.

In the areas of reforms, China should move carefully because the West has failed, and China does not want to pursue policies that don’t work. This is especially true of financial reforms/crimes/blunders that have caused the current disaster in the West. In particular, China should maintain the division of banking into investment banks and commercial banks to avoid turning its financial system into the casinos that western banks have become. China should maintain its state owned enterprises and state private partnerships because the economy is too important to leave in the hands of people whose main motivation is private greed. “From each according to his abilities; to each according to his needs” is a sound business philosophy that is similar to Radio Shack’s “If you take good care of your customers, your customers will take good care of your paycheck and the company’s profits.” The West and Radio Shack have strayed from these views and both are failing.

Mar 22, 2013 3:06pm EDT  --  Report as abuse
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