MercoPress. South Atlantic News Agency

China shows no signs of slowing down

The Chinese boom shows no signs of slowing down according to a report from the Organization for Cooperation and Economic Development, OCDE, and will keep growing at the average 9,5% recorded during the last twenty years.

The first China report from the OCDE indicates that the country's GDP is only surpassed by United States, Germany and Japan, and could easily become the world's leading exporting economy by 2010 overtaking Germany.

Liberalization and economic reforms have helped China grow uninterruptedly for the last 25 years and the private sector now accounts for over 57% of national production, excluding agriculture adds the report. Private sector productivity has consistently grown and shows in a 15% capital profitability. Government owned companies are also improving with only 35% of them remaining non profitable. Labour market flexibility has created 14 million new jobs between 1998 and 2003.

OCDE also praised the financial policies of Beijing which have proved solid and granted stability: "The financial situation is healthy and offers the opportunity for a counter cyclical policy in budget affairs".

But one of the most rapid economic transformations of modern time also has room for progress in other areas. Family income is doubling every eight years and has helped to considerably reduce poverty levels but more investment in education and health is needed in rural areas and for immigrants arriving in cities. Actually only a fifth of the country's rural population, its poorest has any kind of health cover.

Population ageing is another challenge for the roaring economy.

The quality of the environment is also a serious cause for concern. Five of the ten most polluted cities in the world lie in China. The OCDE report warns that with the pace of economic change remaining strong, the state must work harder to reduce pollution.

However the report warns that the Chinese monetary policy with the Yuan previously linked to the US dollar, and now to a basket of currencies still leaves the Chinese economy "vulnerable to external shocks, to inflationary and deflationary thrusts", and therefore monetary policy should be more flexible. Inflation in the first half of 2005 reached 4,5%, which is considered by OCDE higher than desirable.

"More flexible exchange rates will contribute to a more stable macroeconomic environment". Anyhow the report admits that efforts are been made in the right direction, credit awarding has become less generous and more specific since 2000 and the large banks have progressed in cleaning their liabilities and bad loans.

"But 30% of the banking system needs capitalizing, capital markets should be liberated and improved management is needed".