Chinanews, Beijing, Jan. 18 – Influenced by excessive production capacity, Chinese economy might experience a turning point in the second half of this year, with the economic growth rate possibly falling to 8%, said Wang Jian, general secretary of the Macroeconomic Society of the State Development and Reform Commission.
He made the remarks Monday while attending the China Economic Forum. At the forum, Wang spoke highly of the Chinese economic performance in 2006, saying that while the economy maintained the high growth rate of 10%, inflation was kept at only 1.5%. From a global perspective, such good economic performance could only occur in China.
However, Wang voiced his worry about the future economic situation this year. The recent round of economic cycle, which started four years ago, will end this year. High investment activities will inevitably bring about an all-round excessive production capacity crisis, Wang said.
In fact, excessive production capacity began to occur in some industrial sectors last year. In steel production, investment rate once reached 173% in 2004 and in electric power generation, investment once reached 62.7%. In March last year, investment rate in steel turned to be negative and in electric power generation investment growth rate fell to 13.5% in the previous 11 months. Such decline will meet its lowest point this year. Without the support of high consumption demand, economic decline will become inevitable when investment growth starts to slow down, Wang said.
The declining US economy will also bring a negative influence to domestic economy. The ever-increasing trade surplus has greatly alleviated the excessive production capacity problem for the time being. However, as US economy will slow down this year, trade volume will also reduce and this will make excessive production problem further worsen, Wang said.
However, not everyone agrees to this view. Qin Hongyu, an analyst at the BNP Paribas, a European banking and financial firm, said that currently, 75% of production had been utilized and there is no sign to show that excessive production capacity will occur now. Under the influence of the US economy, Chinese economy will slow down this year. However, economic growth rate can still reach 9.6%, not 8%, for 2007, he said.
