China’s economy likely became one of the world’s five biggest in 2005 as booming exports and surging investment again helped secure growth of well above nine percent, analysts said on Monday.
Ahead of Wednesday’s release of China’s 2005 economic data, analysts expect the world fastest growing major economy to surge between 9,5 and 10,3% to surpass the two-trillion-dollar mark.
”It will definitely go past France, so for sure China is going to be the number five economy in the world,” Chen Xingdong, an economist at BNP Paribas in Beijing, said.
France’s economy posted gross domestic product (GDP) of $2,04-trillion in 2004, according to World Bank figures, and economists estimate its economy was unlikely to have grown by more than two percent last year.
Given China’s rate of growth — around five times faster than Europe’s — the Asian juggernaut could even surpass powerhouse Britain, the world’s fourth largest economy.
”It would depend on the UK’s GDP [last year]. Number one the nominal GDP growth and number two the exchange rate of the British pound against the US dollar,” said Chen.
Only last month the Chinese economy had officially been worth $1,6-trillion, a still formidable sum that placed China seventh on the list of world’s largest economies.
But Beijing’s announcement on December 20 that the economy had been erroneously undervalued by 284 billion suddenly lifted China past Italy into the sixth spot.
Following the revaluation, the government said China’s economy had expanded at an average rate of 9,9% between 1993 and 2004, up from 9,4% reported previously, with growth of 10,1% in 2004.
For years international economists warned that the Chinese economy was undervalued because millions of service-orientated businesses had been unaccounted for.
The adjustment led the National Development and Reform Commission, the nation’s top economic planning body to overhaul its 2005 GDP growth forecast from 9,4% to 9,8%.
The tax bureau also raised its estimate to 9,8%.
Economists were pleased with the revaluation because it meant the economy was in better shape than previously thought.
”The details of the revisions also suggest that growth is on a more sustainable footing,” Lehman Brothers economist Robert Subbaraman said in a note to clients.
The imbalances had led to fears both at home and abroad that the massive amount of fixed-asset investment, which at times neared a nerve-wracking high of 50% of GDP, could lead to an inflationary crisis.
But now that the economy is worth $284-billion more, fixed asset investment levels, a major barometer of how much the government is spending on major infrastructure projects, have improved.
”It is likely that the investment-to-GDP ratio for 2004 will be revised down closer to 40%,” said Subbaraman, who expects annual GDP growth of 9,8% with inflation to remain under control.
Even China’s consumption-to-GDP ratio, long a source of concern for a government looking to shift more of the economic burden to the consumer, has improved.
”The revised GDP data shows a less imbalanced economy: over-investment and hence concerns about a potential oversupply problem in China’s economy are less severe than previously thought,” said Subbaraman.
”In addition, scaled by a larger GDP, many of the indicators of vulnerability of China’s economy have improved, including external debt, non-performing loans and energy efficiency.”
Fears of a hard economic landing have subsided although economists say the many structural problems of the Chinese economy have yet to be solved.
More than 100-million people are still living in abject poverty and the per capita GDP ration for China’s 700-million rural residents remains below that of more than 100 other countries.
Zuo Xiaolei, chief economist at Galaxy Securities in Beijing agreed that despite the improvements, much more had to be done to address the wealth disparities.
”We still have a lot of problems unresolved — like the [economic] imbalance between urban and rural areas and the imbalance of people’s income in different regions.” – Sapa-AFP