Thursday, December 22, 2005

China economic growth comes at a price

China economic growth comes at a price

SHANGHAI (AFP) - China's breakneck economic growth once more dominated global headlines this year but so did its tragic industrial accidents, fatal riots, protests and disastrous environmental pollution.

Its export-driven economy barely paused for breath in 2005, galloping ahead in the first three quarters of the year at annualised rates of 9.4 percent, but that pace came at a heavy price.

While the Asian giant astounded with its impressive expansion to emerge as the world's sixth largest economy, and likely to surpass European powerhouses France and Britan in 2006, its economic ambitions increasingly divided its people between the haves and have-nots.

"There is a lot inequality in terms of urban workers a lot richer than rural workers and the coastal regions a lot richer than the western regions, so there is a challenge of trying to find jobs for the people moving to the cities," said Robert Subbaraman, economist at Lehman Brothers in Tokyo said.

The cental government, acutely aware that it must bridge the gulf that leaves some three-quarters of its 1.3 billion people living in relative poverty, has struggled to implement effective policies to counter growing social discontent.

It is one of Beijings many challenges as it tries to balance economic development, especially in deeply impoverished rural areas, with new concerns for protecting the environment and demands for reform from its trade partners.

"There is always pressure and challenges for an economy as big as China's that is changing so rapidly, becoming more market-based and reforming in so many ways," said Subbaraman.

"The imbalances of the environment are critical you can't just grow fast, you have to make sure that you have sustainable growth and to get sustainable growth you need to look after your environment," he added.

China navigated many of the pitfalls of globalised commerce, facing down a slew of trade frictions with its two largest trade partners the EU and US, even as it struggled at home as officials came under fire over mining tragedies, state-sanctioned toxic dumping, government land grabs and official corruption.

Angry protestors, broadly questioning China's blind pursuit of economic development, took to the streets time and again sometimes with tragic consequences.

In early December in China's southern Guangdong province, infuriated farmers in Dongzhou took to the streets over inadequate compensation for land tipped for use to build a power plant.

Police shot three people but locals have claimed many more were killed.

Athougth China's leadership this year called for a new approach, being more environmentally friendly and in tune with people's demands, it is hardly likely China is willing to sacrifice growth given the need to provide jobs and meet rising expectations after 25 years of experimentation with capitalism.

It continued to consolidate its international trading ties and faced significant pressures from its partners with poise.

It resolved a nasty textile spat with the US and EU and parried continued accusations over its rampant violation of intellectual property rights (IPR) with promises to do more.

Massive political pressure, especially from Washington over its currency, claimed to be undervalued and distorting to global trade, was deflected with a 2.1 percent revaluation of the yuan in July and its placing in a currency basket, ostensibly allowing for greater forex flexibility.

Amid finger pointing over its burgeoning trade surplus, expected to hit a record 200 billion dollars with the US alone this year, battles fought by the central bank to slow runaway growth in credit and industries such as real estate were billed a relative success.

Threats of production gluts in its steel and autos as well as a frail equities market undergoing painful but needed reform failed to deter overall investor enthusiasm in the world's fastest growing major economy but questions about where new funding will come without effective capital markets remain.

Although continued strong foreign investment flows were the envy of other emerging countries like India, overzealous government investment in major infrastructure projects continued to provoke economic overheating fears.

"The Communist Party leadership intends to intensify its campaign against overzealous investment in 2006 but arguably it has been losing the fight in 2005," said Michael Kurtz, an economist at Bear Stearns in Hong Kong.

"Lower inflation, reflecting slumping pricing power and thus, impaired profitability, suggests a rising overhang of excess capacity vis-a-vis final demand," said Kurtz.


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