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China Warns of Slowing Economic Growth Rates

A pizza delivery man wearing a reindeer helmet rides an electric bicycle crossing a road junction in Beijing, China. Chinese leaders pledged fine-tuning to ensure stable and more balanced growth while fighting inflation, ending a top-level economic planni

As China looks ahead to 2012, Chinese economists are cautioning that the country is likely to have lower rates of economic growth than the nine percent expected for this year. They say the government also should be preparing the public for the possibility of more inflation.

China's economic boom

During the past few years of global financial gloom, China has remained one of the world's economic bright spots.

At a recent ceremony to mark China's first decade in the World Trade Organization, President Hu Jintao stressed that a strong Chinese economy is good for the world.

Hu vowed that China will continue to follow a path of peaceful development and is committed to what he described as a win-win strategy. He added that China is committed to the common development of the world by realizing its own development.

China's economy has grown at an annual rate of about 10 percent for more than three decades.

Different reasons for slowdown

Yu Bin, a senior macro-economist with China's State Council, says there are signals that China is nearing the end of a period of high economic growth.

Yu says the official forecast for China's economic growth next year will be lower than nine percent. He says he expects it will fall to about 8.5 percent.

He says there are many different reasons for the economic slowdown, but that it is partially due to Chinese government efforts to rein in inflation in the world’s second largest economy.

The economist says some believe that a Chinese economic slowdown is a temporary negative effect from the U.S. and European debt problems. But he adds that it is also part of what he describes as the Chinese government's “prudent” monetary policy aimed at curbing inflation.

Demand for exports declining

Yu says overall inflation this year, as measured by the consumer price index, will be around four percent. He says this is the same target for next year, but at the same time he warned that Chinese people will have to, in his words, “increase their tolerance for inflation.”

Liu Li-Gang, with the banking group ANZ Hong Kong, is predicting a slightly higher growth rate for China in 2012. “We think that a growth of nine percent in the coming year can be obtained,” he said.

Liu says since external demand for Chinese-made products has slowed, China will have to rely more on spurring demand at home - through increasing domestic consumption and investment.

“We have seen a lot of investment in roads, railways, but not enough investment in areas that are related to Chinese welfare, such as small investment in hospitals, education and things like that," Liu explained. "I think that perhaps the government will rely on administrative measures to enforce more investment in welfare-related areas so that overall social stability can be maintained.”

Challenges lie ahead

He points to another grassroots issue that he believes will be problematic in 2012. “I would say if there is a challenge, the government will need to continue to use its administrative measures to crack down on corruption at the low level of the government, so that social stability, discontent, can be managed,” Liu said.

Government economist Yu Bin says Beijing is aware of the need to spend more on the welfare of its more than one-point-three billion people. He says this is the reason why the country's 12th, five year economic plan that goes into effect in 2012 has made improving peoples' livelihoods one of its central tasks.