The Chinese economy has passed the $1 trillion mark for the first time ever.

New figures from the Chinese government show that the economy grew by 7.1% in 1999 to $1.005 trillion (8.3 trillion yuan), making it the world's seventh largest economy.

Including Hong Kong, China's economic output if $1.15 trillion.

It is poised to overtake Italy and the United Kingdom, the world's sixth and fifth largest economies, whose 1998 GDP was $1.2 trillion and $1.16 trillion respectively, in the year 2000.

In relation to the size of its population, China produces far less per person. Its per capita GDP of around $800 compares to around $21,000 in the UK and $29,000 in the USA. As well, the contrast between the wealth in the coastal cities, and the poverty in the rural interior, is very great.

Slowdown looms

But China's growth rate has been slowing down, hit by falling consumer demand and competition from other Asian countries.

The rate of growth has slowed from 1998, when the economy grew by 7.8%.

Up till now, China's extraordinary growth has been fuelled by an export-led boom.

Exports amount to one-fifth of the economy, at $195bn, while imports are far less, at $165bn, leading to a trade surplus of $30bn.

But that is a decline from last year's $43bn surplus, and the damage to exports from other, more competitive Asian countries has been one of the major reasons for the slowdown.

Exports only increased by 6% in 1999, while imports surged by 18%.

Weak domestic demand

Adding to China's economic problems have been a reluctance of consumers to spend, and a glut of unsold consumer products.

Retail prices in China actually fell by 2.9% in 1999, after falling 3.2% in 1998, and many factories have stopped investing in new production facilities.

Consumers are particularly worried about being made unemployed as China attempts to modernise its ageing state-run industries under the spur of world competition.

The World Bank estimates that some 35m workers out of 140m in those industries could lose their jobs if China opens its industries to full competition, as it has pledged to do as part of a deal to join the World Trade Organisation next year.

Uncertainty for next year

Economists are divided on how quickly the Chinese economy will grow next year.

US investment firm Merrill Lynch suggests that it will increase by 8.5%, as exports recover.

Li Guobin of the State Information Centre said that "deflation was expected to ease as demand picks up" while exports "were expected to become a major driving force in the economy."

But Zhang Shuguang of the private think tank the Beijing Institute of Economics said that the lack of investment was likely to be a problem.

"The government will have to spur investment to help stimulate the economy," he said.

The government has already issued special bonds worth $10bn in order to pump-prime the economy. The money is being used to build infrastructure projects, especially in poor areas, and help firms modernise.

But the result has been a soaring government deficit which is expected to double in 1999.

And there are more hidden liabilities, including possible future social welfare payments for laid-off workers and a huge volume of bad debts held by the state-owned banks.