China

Experts defend lag in economy

By Zhong Nan (China Daily)
Updated: 2010-10-22 15:26

BEIJING - A lag in the Chinese economy as consumer sales gradually rise could help ease the trade tension between China and the United States, economic experts said.

"An immediate effect of a slower economy will be a waning growth in exports, which is going to relieve Sino-US trade friction," said Song Guoyou, a professor at the Center for American Studies at Shanghai-based Fudan University.

His predictions came after China announced on Thursday that its GDP went up 9.6 percent year-on-year in the third quarter, a drop from its 10.3 percent growth in the second quarter.

Despite the slowdown, retail sales in September jumped 18.8 percent year-on-year, a sign of "broad-based strength" inconsumption, said Jian Chang, analyst at Barclays Capital. September figures are up from the 18.2 percent growth in August.

Barclays Capital predicted that China's GDP will grow 10.1 percent this year and 9 percent next year.

A surge in China's retail sales could usher in more product imports from the US, China's second largest trading partner. That could significantly narrow the trade imbalance between the two, Song said.

In September, bilateral trade stood at $35.96 billion, with China enjoying a trade surplus of $18 billion. The surplus was a slight drop from the previous month.

That trend will continue in the coming months, said economic experts, as Chinese policymakers attempt to rein in its export-led economic growth and boost local consumption.

"China's economic growth will be slow during the fourth quarter or even the first quarter of next year because the government wants to combat inflation and stimulate domestic demand," said He Jingtong, professor at the Institute of Economics of Nankai University in Tianjin.

China's surprise decision to raise the benchmark interest rate by 25 basis points on Tuesday showed that the government has the current slowdown under control.

As the economy wanes, the threat of rising inflation has been so far stemmed. Inflation reached a 23-month high of 3.6 percent in September.

"An economic slowdown is good to tame China's exports and reduce trade frictions with major trading partners," said Fan Ying, professor of economics at Beijing-based China Foreign Affairs University.

Tensions have been building recently after Washington pressured Beijing to appreciate the renminbi to correct trade imbalances. The US' House of Representatives passed a bill late last month to treat China's exchange rate as a subsidy and impose punitive tariffs on Chinese imports.

China responded by saying the yuan was a "scapegoat" for the US' economic and unemployment woes.

China Daily