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Economic conditions

China's Economy to Slow Down Slightly in 2006, World Bank Predicts

Strategic Insights

— 1 min read

China's economic growth, which reached a decade-high of 11.3% in the second quarter, is expected to slow down slightly in the second half of the year due to the government's macroeconomic control measures, according to the World Bank. The bank's latest quarterly report projects that the country's gross domestic product (GDP) may grow 10.4% for the whole of 2006, down from the 10.9% expansion in the first half. Despite the tightening measures, investment growth is likely to remain strong, with a 31% growth rate in the second quarter. Domestic consumer spending is expected to continue benefiting from rising incomes, particularly in urban areas.

Key Takeaways:

  • The World Bank predicts that China's economy will slow down slightly in the second half of 2006 due to government control measures, with GDP growth projected to be 10.4% for the year.
  • The economy grew at a decade-high 11.3% in the second quarter, raising concerns of overheating, but the World Bank downplayed these concerns.
  • Investment growth is expected to remain strong, with a 31% growth rate in the second quarter.
  • Domestic consumer spending is expected to continue benefiting from rising incomes, particularly in urban areas.
  • The government has taken several measures to cool down the economy, including raising the benchmark lending rate, increasing banks' required reserves ratio, and imposing restrictions on land use and foreigners buying property.
  • The World Bank's lead economist for China, Bert Hofman, stated that there is no generalized overheating at the moment, but rather concerns about the efficiency of investment and the potential for overcapacity in some sectors.

Statistics:

  • GDP growth rate for the second quarter: 11.3% (highest since 1996)
  • GDP growth rate for the first half: 10.9%
  • Projected GDP growth rate for the year: 10.4%
  • Projected GDP growth rate for 2007: 9.3%
  • Investment growth rate in the second quarter: 31%
  • Increase in urban property prices in July: 5.7% from a year earlier
  • Reserve requirement ratio increase: 27 base points to 5.85% on April 27
  • Banks' required reserves ratio increase: twice, with the latest taking effect on August 16
  • Official figures on urban property prices: June (5.8% increase from a year earlier), July (5.7% increase from a year earlier)

Sources:

  • The World Bank's quarterly report
  • "Beijing, Aug 16 Asia Pulse" article
  • (XIC) 16-08 1710

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