China’s Economic Growth Sizzles
SHANGHAI — China’s economy grew at a surprisingly breakneck pace at the end of last year, the government said Tuesday in a report sure to increase pressure on Beijing to address its burgeoning trade imbalance with the United States and other countries.
At a sizzling 9.5%, growth in the fourth quarter was nearly a full percentage point higher than most economists had expected. What’s more, the report comes as China is trying to slow its growth to a more sustainable pace.
The economic acceleration at year-end lifted growth for all of 2004 also to 9.5%, the fastest rate in eight years. By comparison, the much-larger U.S. economy has been increasing at about a 4% annualized rate.
China’s fortunes have a direct bearing on many pocketbooks across the U.S.
Robust growth in the world’s most populous nation is a boon for some, including California cotton farmers and Arizona copper miners, who are enjoying strong sales to China. But others, such as furniture and apparel makers, are suffering as a result of intense Chinese export competition, which also was reflected in the latest report.
Analysts said the larger-than-expected rise in China’s gross domestic product was due at least partly to a widening trade surplus with other nations. As such, the latest statistics are likely to renew calls for Beijing to revalue its currency, the yuan, which is pegged to the dollar.
Because the dollar has been weak, the yuan’s value has been lower, too, which makes Chinese products cheaper in overseas markets.
Americans have blamed a loss of U.S. jobs on an undervalued yuan, and U.S. and European trade officials have been urging Beijing to at least allow the currency to float in a broader range with the dollar.
“The Chinese economy continues to do great damage to the U.S. economy,” said Peter Morici, a University of Maryland trade expert. “This growth is stolen from the American Midwest.”
China could face a new round of demands to revalue the yuan at the Group of 7 meeting of central bankers and finance ministers in London next week. On Tuesday, a senior Chinese official reiterated that the country wasn’t ready to take such a step.
It’s far from clear that a revaluation of the yuan would make a big dent in America’s trade deficit with China, which through November stood at a gaping $147.7 billion -- up nearly 30% from a year earlier.
But the attention that the United States, Europe and others have focused on the matter underscores the increasingly important role of China’s economy, which some analysts believe could overtake America’s in size in 20 years.
The statistics released Tuesday showed China continues to be the fastest-growing major economy in the world. To support its massive industrialization, China has been a key driver of sales and prices of commodities such as oil, steel and cement.
China’s GDP growth, coupled with market reforms, also means more opportunities for the U.S. and others to reap the benefits of China’s emerging middle class and large consumer market.
Retail sales in December surged at an annual rate of 14.5%, and they rose by more than 13% for all of 2004, China’s National Bureau of Statistics said Tuesday. The average total household income in China increased almost 12% in November from a year earlier.
Few expect 2005 to be much different. “China is going to enjoy a year of buoyant economic activity,” said economist Tim Condon, who heads Asia research at ING Financial Markets in Singapore. “It’s good for everyone, especially the Chinese.”
Yet the latest statistics also highlight some continuing areas of concern about China’s economic development.
Spending on buildings, equipment and other so-called fixed assets rose a strong 26% in 2004. Some analysts fear that unless growth in this area slows down, the economy could become overheated and investments could collapse -- similar to what happened in Japan in the late 1980s.
To rein in rampant investments and engineer a so-called soft landing, Beijing has placed new restrictions on bank lending. And in October, the government raised interest rates for the first time in nine years.
The statistic bureau’s director, Li Deshui, suggested Tuesday that such policies seemed to be curbing “unhealthy and unstable” growth. Indeed, fixed-asset spending declined steadily at the end of the year.
In addition, inflationary pressures have subsided in China in recent months, reflecting moderation in food and grain prices that had spiraled in the first half of 2004. For the full year, the consumer price index was up 3.9%.
Still, Tuesday’s report suggests that Chinese officials may have to impose another rate hike, as well as keep up other administrative controls, to prevent an overheating of the economy.
Complicating matters is a surge of “hot money” -- speculative investments flowing into China from Taiwan, Hong Kong and other places.
Economists estimated that the fourth quarter saw an increase of $55 billion of hot money, some of it clearly from people betting that the yuan will appreciate.
Meanwhile, U.S. manufacturing groups, led by the textile industry, have been pushing the Bush administration to act more aggressively to force China’s hand on the currency issue.
Sen. Charles E. Schumer (D-N.Y.) noted last week that he was supporting legislation to apply a 27.5% tariff to all imports from China, with the aim of offsetting the benefit Chinese exporters gain from their exchange rate.
Analysts are skeptical that a Republican-controlled Congress would support such a measure, given that such actions have been strongly resisted by the White House. But Greg Mastel, a former congressional staffer, said the ballooning trade deficit would make it harder for the Bush administration to “punt” on the topic.
“With the election gone now, there is going to be more business pressure to address these issues,” said Mastel, senior trade advisor at law firm Miller & Chevalier.
Already, U.S. textile manufacturers are pressing the Bush administration to use special “safeguard” measures to restrict imports of popular Chinese-made apparel, such as knit shirts and pants. U.S. firms may also file more anti-dumping actions against China and press for greater restrictions on the export of technology to that country.
Yet others, including the Bush administration, believe it is too early to call China’s anti-inflationary strategies a failure.
“It’s difficult to look at one quarter of statistics and make a judgment,” said John Taylor, Treasury undersecretary for international affairs.
Lee reported from Shanghai and Iritani from Los Angeles.
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