China Paying For Olympic 'clean Air'

Sun Herald

Sunday August 17, 2008

By KEVIN HAMLIN BEIJING

CHINA'S growth is cooling and may spur the Government to ease lending restrictions, provide more export tax rebates and stall appreciation of the currency, analysts said after seeing economic reports last week.

The rise in industrial production in July was the weakest in 16 months as orders for exports faltered.

The slowdown in China, which powered almost 30 per cent of global expansion last year, may be exacerbated by factory closures to cut pollution during the Olympics, Goldman Sachs said in a report.

The Chinese economy rose by 10.1 per cent in the second quarter, the fourth consecutive slowdown, prompting Communist Party leaders to put a bigger emphasis on maintaining growth and protecting jobs.

Government statements in the past month have dropped references to a tight monetary policy. "China needs much faster growth than an average Western country as it has to generate 10 million jobs a year," said Tao Dong, chief Asia economist with Credit Suisse in Hong Kong.

"Eight per cent growth in China is equivalent to a recession. Below 9 per cent would make the authorities quite nervous," he said.

Economic statistics for July, released in the past week, showed a mixed picture. Exports rose, retail sales climbed the most since 1999 and spending on factories and property increased. At the same time, weaker production growth foreshadowed softening demand for Chinese goods as the US, Japanese and European economies decline.

Factory closures and restrictions on construction, mining and vehicles to reduce pollution for the Olympics will be a drag on growth in August and September, Goldman Sachs said in report on August 8.

© 2008 Sun Herald

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