world growth

world growth

Thursday, July 19, 2012

Fitch Sees ‘Soft-Landing’ for China

Though a hard landing is still a possibility.

A leading credit-rating agency says the Chinese economy will likely see a “soft-landing” as its growth continues to slow, but warns Beijing against relying too heavily on investment to stimulate growth.

Fitch Ratings said in a report Tuesday it does not foresee China's economy slowing sharply in the upcoming period, despite official figures last week showing economic growth slumping to a three-year low.

But Andrew Colquhoun, Fitch's head of Asia-Pacific sovereigns, tells VOA there are worries that China's renewed reliance on investment is unsustainable. He says investment spending in China now makes up nearly 50 percent of its GDP — a rate that is much larger than other large developing countries.

“We think that growth that involves or is driven by an ever-rising share of investment in GDP is inherently unsustainable … Investment is already less efficient in China than it is in these other countries, which could be storing up problems for the future.”

Recent statements by Chinese officials, including Premier Wen Jiabao, have suggested that promoting investment is a main priority in supporting growth in the remainder of the year.

That would represent a change for Chinese leaders, who in recent years have said they are trying to rebalance China's growth model towards greater dependence on consumption, and less on investment and exports.

Colquhoun said he still sees reason for optimism despite China's slowdown, noting that a “quite resilient” labor market has kept incomes growing and has led to a surplus of vacancies in China's cities. He said Fitch maintained its eight percent projection for Chinese growth in 2012.

Even though China's 7.6 percent growth rate in the second quarter of 2012 was its lowest figure since 2009, China's economy – the second largest in the world – is still growing faster than every other leading economy.

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