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China official plays down WTO impact on growth

China will face an "extremely grave" economic situation in 2002 and hopes simply to maintain seven per cent growth in its first full year of WTO membership, a top official said on Thursday.

"As China enters the WTO, the major world economies -- the United States, Europe and Japan -- are all slowing. This will have a serious impact on China's economy next year," said State Economic and Trade Commission Vice Minister Zhang Zhigang.

"Next year, the economic situation is extremely grave," he said.

Western economists predict China's entry to the World Trade Organisation, which became official on Tuesday, could add 0.5 to one percentage point to economic growth over time as trade and foreign investment surge.

But Zhang played down such forecasts, saying China would be lucky if foreign trade did not fall next year given the world downturn, which has caused exports growth to slow.

"My own prediction for China's GDP next year, although it is only a guidance target, is that it will continue to be around seven per cent. If our imports and exports do not slip that will be a big achievement," he told a news conference.

Zhang's seven per cent forecast is exactly in line with the government's target for the next five years. Gross domestic product rose an annual eight per cent in 2000 and is expected to be at least seven per cent this year.

Seven per cent is the level many analysts say China needs to absorb the jobless as it streamlines the ailing state sector and cuts farm workers because of cheap imports as WTO membership cuts tariffs.

The Ministry of Labour said on Wednesday that the government would need to create eight million new jobs next year to prevent the urban jobless rate from spiking above 4.5 per cent.

MORE BAD NEWS

To keep the economy moving next year, China would rely on state spending and domestic consumption as exports slowed, Zhang said.

In the first 11 months of this year, exports rose just 6.3 per cent year on year to $241.57 billion, giving China a trade surplus of $20.37 billion. That compares to 27.8 per cent export growth for all of last year.

"We will continue to implement a pro-active fiscal policy and stable monetary policy, and make expanding domestic consumption a major driver of economic growth," Zhang said.

In more bad news for the economy, China said on Thursday its benchmark consumer price index -- a measure of domestic consumption -- fell 0.3 per cent in November from a year ago. It rose just 0.8 per cent in the first 11 months.

Analysts said the figures showed China was renewing a battle against deflation despite a respite earlier this year and many people remained reluctant to spend.

WTO TO HELP

Still, entry to the WTO should bring long-term economic benefits to China, analysts said.

"It should speed the opening up of various sectors and bring in more investment which would stimulate growth, rather than growth being dependent on the government sector," said Paul Schymyck, regional economist for IDEA Global.

Nomura Securities said in a report this week China's foreign trade would more than double to $1.0 trillion by 2006 and foreign direct investment should grow an annual 16 per cent.

China's actual FDI rose 15.61 per cent year on year to $41.90 billion in the first 11 months of this year, while contracted foreign investment, a future indicator, rose 24.38 per cent to $60.41 billion, the trade ministry said on Thursday.

Imports were likely to increase with WTO membership and prices could fall as more foreign products come into the market, analysts say.

Greater choice could also cause consumers to spend more, luring some of China's massive $2.0 trillion in domestic deposits out of the banks, helping the economy, they say.

But greater imports would also cause the trade surplus to narrow, putting pressure on the domestic yuan currency, analysts say.

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