BEIJING - China's central government is facing a tough battle with the provinces to slow its overheating economy, with trillions of dollars of investment projects already underway or in the pipeline, analysts said Sunday.
In his annual work report to the National People's Congress on Saturday, Premier Wen Jiabao said the government would slow gross domestic product growth from 9.5 percent pace in 2004 to "around 8.0 percent" this year, despite warning that it would be difficult to control runaway fixed-asset investment.
"This is a period of important strategic opportunities for China, and the economy should grow rapidly, but not be allowed to overheat," Wen said in his speech to parliament.
China badly missed its targeted growth rate of around 7.0 percent in 2004, leading some economists to place little importance on the government's annual exercise of forecasting growth.
"It really doesn't matter if it's seven or eight percent. Last year, it ended up at 9.5 percent, and everyone agrees that it was substantially underestimated," said Chen Xingdong, the Beijing-based chief China economist with BNP Paribas Peregrine Securities.
Based on such data as energy consumption, Chen believes the real nominal growth rate last year was 18 or 19 percent, while calculating for inflation of up to seven percent, real growth in 2004 was more than 11 percent.
"Even if the government can't control the growth rate, it can control the statistical data to make sure the growth rate ends up at seven or eight percent," he said.
In an effort to cool the economy, China's economic planner Ma Kai, head of the National Development and Reform Commission, Saturday announced growth targets in the broad money supply of 15 percent and a 16 percent growth target in fixed assets investment.
This is after fixed assets grew by nearly 27 percent in 2003 and 25.8 percent last year to 7.0 trillion yuan (845 billion dollars).
"The driving force behind investment growth is strong, and investment demand could return to excessive levels," Ma admitted.
"The economic system is unsound, the economic structure is irrational and the pattern of economic growth is too crude," he said, in a frank admission of the problems the government was facing.
China's M2, or broad money supply grew by 14.6 percent in 2004, five percentage points lower than in 2003, official statistics show.
Citing "significant inflationary pressures," Ma said the government would work to keep inflation at 4.0 percent this year, following a 3.9 percent official rise in consumer prices in 2004.
Andy Xie, chief Asian economist at Morgan Stanley, said the government clearly saw the need to slow down the economy, but both Wen and Ma's reports lacked any concrete measures.
"Fixed asset investment growth of 16 percent will be very hard to implement because there is lots of liquidity in the banking sector and the provinces have about 25 trillion yuan in projects that have already been approved," Xie told AFP.
"This will be very hard to implement and it will depend on how the central government can persuade the local governments to slow down spending. There is a lot of resistance from the local governments to lower growth."
Meanwhile Premier Wen pledged to cap export growth at 15 percent, despite an end to global textile import quotas in January and after Chinese exports grew more than 35 percent during both 2003 and 2004.
With the end of the Multi-fiber Arrangement on import quotas, cheap Chinese exports were expected to continue to flood global markets this year, already drawing the concern of the United States, the European Union and China's manufacturing competitors in the developing world.
"The export boom in the last two years was fueled by the United States. With the US tightening their monetary policy, Americans will have less money to buy things. So the export target is pretty much predictable," Xie said.
03/06/2005 06:48 GMT