China's roaring economy set to overtake Germany
by Benjamin Morgan Sun Jul 15, 1:39 AM ET
SHANGHAI (AFP) - China's economy grew so rapidly in the first half of 2007
that it is likely to overtake Germany as the world's third-largest by the end
of this year, analysts say.
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The release Wednesday of January to June figures for Asia's second biggest
economy will provide fresh evidence that Beijing's economic braking measures
have had little effect.
China's sizzling economy expanded even faster than originally thought last
year, with the government revising 2006 growth domestic product (GDP) to 11.1
percent from 10.7 percent.
Data released by China's statistics bureau last week showed the economy was
worth 21.09 trillion yuan in 2006, about 2.65 trillion dollars based on last
year's average exchange rate of 7.97 yuan to the dollar.
The revision puts China in striking distance of Europe's largest economy
within months.
"With this upward revision, it is highly likely that China will bypass
Germany to become the third-largest economy in the world in current US dollar
terms by the end of this year," said Hong Liang, an economist at Goldman Sachs.
According to the World Bank, Germany's economy was worth 2.9 trillion dollars
at the end of 2006.
Economists expect GDP in the second quarter to near or equal its breathtaking
January to March pace of 11.1 percent growth.
JPMorgan Chase Bank economist Wang Qian put the second-quarter acceleration
at 10.6 percent, and said it would pick up speed in the second half of the year.
"We donÂ’t see any sector of the economy slowing down. ItÂ’s firing
on all cylinders," said Wang.
The torrid pace of development means that China's economic czars will once
again have to devise fresh ways to prevent the export powerhouse from the kind
of overheating that could trigger a slide into financial crisis.
Regulators have already taken this year introduced a slew of piecemeal
administrative measures to slow the economy, including two interest rate hikes,
five increases in bank reserve requirements and new export curbs.
Exports, one of Beijing's biggest headaches given the friction it causes with
its two largest trade partners, the European Union and the United States, have
continued to flood international markets.
The widening trade gap is on route to becoming the globe's largest ever after
Beijing announced last week that its surplus had jumped more than 85 percent in
June to 26.91 billion dollars.
Although the June figure was partly due to factories rushing to beat new
curbs on exports that took effect July 1, the huge global demand for Chinese
goods means the surplus will expand through the rest of the year, analysts said.
"China has become the world's factory for manufactured consumer goods," said
Qu Hongbin, a senior economist at HSBC in Hong Kong.
"If global consumer demand remains then Chinese exports will grow. There is
not a lot that government policy can do about that."
Washington and Brussels believe one step to staunching the tide of Chinese
goods would be greater appreciation in the currency, which trade partners say
is artificially low and boosts China's business competitiveness. But China's
autocratic leadership fears that could destabilise its financial system, making
such a step highly unlikely, in keeping with the government's repeated position
of allowing the yuan to rise slowly. Earlier this month the nation's top
economic planner said China had to further tighten macroeconomic controls in
the second half in the face of growing financial risks. "The trend is of an
economy that is moving from a bias of fast growth to overheating," said a
research arm of the National Development and Reform Commission. Li Huiyong,
chief analyst at Shenyin Wanguo Securities in Shanghai, said the government had
to get cracking. "At the moment, there is no obvious change to the overheated
economy, with inflation and investment (levels)
likely to jump," said Li. "Under such circumstances, the major task is to
prevent further overheating and strengthen controlling measures."
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