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Tuesday, September 14, 1999 Published at 12:03 GMT 13:03 UK

Business: The Economy

China's growth to slow

China's economy is losing its sparkle

The Asian Development Bank says that China will fail to achieve its growth target of 7%.

The ADB says that China's economic growth rate will fall to 6.8% this year and just 6.0% in 2000.

That compares with growth rates of nearly 10% for the last decade.

China's economy has been hit by a decline in exports, which have not shown any growth for the past two years.

[ image: South Korea's economic troubles are easing]
South Korea's economic troubles are easing
New figures from the Chinese government showed that exports between January and August reached $118bn, a decrease of 0.2% on the previous eight-month period.

Before the Asian crisis in 1997, Chinese exports were growing by 20% each year.

But China's refusal to devalue its currency, the yuan, has made its products less competititive than many of its Asian rivals, whose currencies fell sharply.

China has attempted to boost its economy by increasing public investment, but this strategy does not seem to be working.

Restructuring needed

China is also in urgent need of restructuring its state-owned industries and banking system, according to the ADB.

The Bank of China says it is setting up a new institution to take over some 250bn yuan ($30bn) in bad bank debts, mainly from state-owned firms.

Falling prices have also contributed to the decline in the profitability of state-owned firms.

Retail prices in China were down 2.6% in August, the 23rd straight month of deflation.

With prices continually falling, many consumers have little incentive to buy, preferring to wait until prices go even lower.

Foreign investment also contributed to price deflation, as many new plants have been built to try and serve the Chinese domestic market.

Asian recovery on course

In much of the rest of Asia, the economic recovery that began this year looks like accelerating.

By the first quarter of 1999, Asia excluding Japan grew at a rate of 4.8%, compared with 1% in the first three months of 1998.

The ADB said that it was now predicting overall growth in the Asian region of 5.5% both in 1999 and 2000 - a significant increase on its previous forecast.

The rebound is being led by South Korea, which had made a remarkable recovery and is now growing at 8% per year.

Taiwan, Singapore and Malaysia are also doing well, while India put in a surprising strong performance, growing by 8.4% in the first three months of the year.

Indonesia, however will suffer a moratorium on loans if it does not resolve the Bank Bali scandal. That bank is accused of making an $80m payment to the ruling Golkar political party under the guise of paying a fee for buying back loans.

"Until this issue is resolved, the multilateral development institutions will not disburse these loans and they will not provide new loans," ADB vice president Shin Myoung-Ho said.

The bank warned that there was no room for complacency elsewhere and that reforms must continue.

"Asia has a large agenda for structural reform which needs to be vigorously pursued. Restructuring the banking and corporate sectors and making business transactions more transparent and accountable will increase efficiency in resource allocation," the ADB noted.

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