[an error occurred while processing this directive]
BBC News
watch One-Minute World News
Last Updated: Tuesday, 27 December 2005, 00:22 GMT
China's growth looks set to continue
Analysis
By Will Smale
BBC News business reporter

Deep water port at Shanghai
China's ports are about to have another busy year
To appreciate just how quickly China's economy grew in 2005, you only have to witness the constant lines of giant cargo ships and oil tankers steaming in and out of its ports as fast as they can be handled.

Alternatively, visit Beijing, Shanghai or one of the other big Chinese cities to see ongoing construction projects on a huge scale.

Closer to home for most of us, simply look at the back of your newest piece of electronic equipment and it will more often than not say "Made in China".

Or ask a stressed US or European trade official what they think of 2005's surge in Chinese clothing and textile exports.

Whichever way you choose to look at it, China's growing economic might was one of the main economic stories of 2005.

The question now is whether this can continue at the same pace in 2006, or whether a number of contributing factors could throw the giant Chinese economy off-course.

Overtaking UK

According to revised official figures from China's National Bureau of Statistics, Chinese GDP reached almost 16 trillion yuan ($2 trillion; 1.1 trillion) in 2004, making it the world's sixth largest economy, overtaking Italy.

The Shanghai World Financial Centre will be the world's tallest building when it is completed
China's building boom shows no sign of slowing

With the Chinese economy expected to have grown by a further 9.3% across 2005, most economists now predict that China will rise still further in 2006 to fourth place in the global GDP list, easily passing both the UK and France in the process.

"For sure by 2006 China will become number four and by 2010 it will be more than Germany," says Chen Xingdong, an economist at BNP Paribas in Beijing.

The Organisation for Economic Co-operation and Development (OECD) estimates that the Chinese economy will continue to grow strongly in 2006, with the growth rate rising slightly to 9.4%, and then again to 9.5% in 2007.

Chinese officials have said they broadly agree with this figures, but at the same time, they have recognised a number of potential difficulties, both domestically and internationally.

Country-city divide

Internally, the Chinese government faces an ever-widening economic divide between the richer cities and the poorer countryside, where unemployment is growing.

Chinese textile workers
Chinese textile exports surged in 2005

This has led to a number of protests in rural areas.

Yet Beijing realises this is a problem and in an autumn 2005 report acknowledged that Chinese farmers' incomes are not growing fast enough.

The government is now aiming to improve both social provision and economic circumstances in the countryside to try and reduce the wealth imbalance and any political instability it may bring.

However what is most pressing for the Chinese, is the need to increase general domestic consumption, something the International Monetary Fund has touched upon.

For while China's economy has enjoyed unprecedented growth, the great majority of this has been export-based, with domestic consumers lagging far behind.

The elite in Beijing and Shanghai may have money to spend freely on luxury goods, but China needs to extend this to lower social groups - at the same time as not risking inflationary pressures.

Trade disputes

Domestically, China is also carrying out measures to try and reduce its over-heating steel production.

China's oil demand 1980-2004

Its own National Development Reform Commission estimates that excess steel production will top 100 million tons in 2005, and that internal demand will only rise marginally in 2006.

Economists say it is this excess capacity, both in steel and consumer goods, that is fuelling China's continuing over-reliance upon exports, a factor that is increasingly antagonising both the US and the European Union.

"We're concerned that domestic demand is not sufficient to absorb all this production," says Rob Subbaraman, an economist with Lehman Brothers in Tokyo.

"We worry about an emerging oversupply problem in China, and from a broad macroeconomic perspective, this helps explain why China has a record trade surplus and low inflation."

This trade surplus was $90.8bn for the first 11 months of 2005, three times the level of 2004, boosted by a huge increase in exports of Chinese clothing and textiles products since the end of a long-running global fabrics quotas at the start of the year.

This led to both the US and EU bringing in new temporary quotas under World Trade Organization rules.

Yet the overall Chinese trade surplus is expected to continue at broadly the same rate in 2006.

The US, whose trade deficit with China hit a record $20.5bn in October 2005, says Chinese exports are unfairly boosted by Beijing's policy of keeping the yuan artificially low.

China, which maintains the currency at a fixed rate against the dollar, counters that it increased the value of the yuan by 2.3%in July 2005, and aims to do so again.

Yet Beijing insists it will not be rushed, and that it will only slowly increase the value of the yuan to avoid any destabilising effect.

Black gold

The other main international factor for China is oil.

It is today the world's second largest consumer of oil behind the US, and despite the large rises in prices throughout 2005, it continues to import oil with a tremendous thirst.

To ensure sufficient supply and protect it from price fluctuations, China is working hard to both increase and diversify its supplies.

It recently started work on a 1,000km (620-mile) pipeline from neighbouring Kazakhstan, and has increased investments across Africa.

Energy analysts say China will only increase such efforts in 2006.

China's fast-paced economic growth will undoubtedly continue in 2006, despite the many factors that could conspire to throw it off course.

Beijing is well aware of potential difficulties, and appears confidently able to continue to steer the economy's ongoing upward trajectory.

China is a newly formed economic powerhouse that is here to stay.




SEE ALSO:
China climbs world economic table
20 Dec 05 |  Business
China to maintain 'rapid growth'
29 Nov 05 |  Business
Chinese billionaires on the rise
04 Nov 05 |  Business
China unveils new growth model
12 Oct 05 |  Asia-Pacific
Exports surge fuels China growth
15 Jun 05 |  Business
China's global hunt for oil
09 Mar 05 |  Business


RELATED INTERNET LINKS:
The BBC is not responsible for the content of external internet sites


PRODUCTS AND SERVICES

Americas Africa Europe Middle East South Asia Asia Pacific