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Economic Retrospect in 2007 and Prospect in 2008
Special> Economic Retrospect in 2007 and Prospect in 2008
UPDATED: December 23, 2007 NO.52 DEC.27, 2007
Economic Features in 2007
The year 2007 saw the Chinese economy growing as fast as before and the opening of markets widened and accelerated. However, inflationary pressure has clouded the economy since mid-year

Fast economic growth

Fast economic growth is the keystone of the Chinese economy. According to statistics from the National Bureau of Statistics (NBS), the total GDP in the first three quarters reached 16.6 trillion yuan ($2.24 trillion), up 11.5 percent year on year. This was 0.7 percentage points faster than the growth rate in the same period last year.

A report from the Center for China in the World Economy of Tsinghua University published in December forecasts that the GDP will grow 11.8 percent in 2007.

Since 2003, the country has maintained two-digit growth rate.

Judging by the NBS statistics, investment remains the major driver of the robust economy and contributed 41.6 percent to economic growth. From January to November, the fixed assets investment in urban areas surpassed 10.06 trillion yuan ($1.36 trillion), growing 26.8 percent year on year. Among this figure, investment in the property sector stood at 2.16 trillion yuan ($292 billion), up 31.8 percent year on year.

Consumption has also started to contribute more to the economy. Total retail sales of consumer goods amounted to 8.02 trillion yuan ($1.08 trillion), surging 16.4 percent. In the first three quarters, consumption contributed 37 percent to economic growth, and the figure was 4 percentage points higher than that in 2005.

The function of imports and exports changed slightly in a driver of economic growth. As the nation's macro-control policies took effect, the growth rate of exports began to slow, while the speed of imports picked up, leading to a narrowing in the trade surplus. Figures from General Administration of Customs show that the total trade surplus in the first 11 months surmounted $238.1 billion, growing 52.2 percent over the same period of 2006. This was 6.8 percentage points slower than that in the first 10 months.

Judging by current economic development, in the near future, export speed will continue to slow while consumption and investment will maintain robust growth.

Financial market opens wider

Foreign financial institutions commenced local incorporation efforts in 2007.

In April, four foreign bank branches were locally incorporated in China with Shanghai as their base of operations. The first four banks were HSBC (China), Standard Chartered (China), Bank of East Asia (China) and Citibank (China).

To date, foreign banks have set up 364 head offices or branches in 25 mainland cities, 95 more than that in the beginning of this year.

The central bank's Shanghai headquarters published a report showing that foreign banks in Shanghai reaped 3.847 billion yuan ($520 million) in the first three quarters, up 64.54 percent year on year with a market share of 14.43 percent.

Besides the cities, the rural financial market, long ignored by financial institutions, caught increasing attention from foreign financial institutions. In August, HSBC (China) was allowed to set up a branch in Zengdu District in Suizhou City in Hubei Province and became the first foreign bank entering the rural market.

While large-scale foreign banks entered the mainland, Chinese banks were increasingly expanding their presence in the overseas market. In the first half of 2007, Industrial and Commercial Bank of China and China Merchants Bank sent applications for establishing branches in New York. In the middle of November, the U.S. Federal Reserve approved the latter to set up a New York branch, making it the first Chinese bank approved for the United States financial market.

The opening of the capital market was also on the fast track. The Chinese Government devised a qualified foreign institutional investor (QFII) scheme, which allowed QFIIs to invest a restricted amount of money in the mainland stock market. The QFII quota was raised to $30 billion at the end of this year. Consensus was also reached at the Third China-U.S. Strategic Economic Dialogue (December 12-13) on the allowance of qualified foreign-invested companies, including banks, to issue stocks in the mainland market, on the allowance of qualified listed companies to issue yuan-denominated corporate bonds, and on the allowance of qualified locally incorporated foreign banks to issue yuan-denominated financial bonds.

With the opening of the financial market, the Chinese currency appreciated significantly. On December 14, the exchange rate of yuan against the U.S. dollar was 7.3589. The yuan has appreciated 11.08 percent against the U.S. dollar since China reformed its currency on July 21, 2005.

Runaway inflation

Pork and edible oil prices spiked. The consumer price index (CPI) growth kept rising from 3.3 percent in March to a decade high of 6.9 percent in November, hovering above the government-set warning mark of 3 percent for nine months.

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