Chinese boom shows no sign of slowdown

Leading analysts say that the country will be able to sustain growth of at least 8 per cent a year for the next decade, writes Clifford Coonan in Beijing.

Pushing a shopping trolley through the aisles of Jenny Lou's supermarket in Beijing provides you with all the evidence of the enterprise, hard work and sheer pace of growth in the new China that you are likely to need.

Wandering past shelves replete with full-bodied Bordeaux wines, Belgian chocolates, American cereals and Australian crisps, you certainly do not sense that anyone in China expects the breakneck economic growth rates of recent years to slow down anytime soon.

According to the official figures, growth has averaged at more than 8 per cent a year since China started to reform its economy along market lines in the late 1970s.

Perusing fridges full of robust German sausage and ripe French cheeses, stacked alongside high-quality, fresh local vegetables and dairy, it's hard to imagine this chain of shops was a simple fruit stall just 10 years ago.

Wang Jianping, the Jenny of the shop's title, is a diminutive, but phenomenally shrewd native of Henan province, who began selling fruit in the diplomatic area of Beijing back in 1995.

The story of her ascent from stall-owner to owner of a chain of supermarkets in the capital reads like a parable on how China's economy has surged ahead in the past decade of booming growth.

While China has long been the most heavily populated country in the world, it has always been a bit of a basket case when it comes to economic measurements, but now its commercial muscle is significant.

More than half of all industrial goods are made in China. Millions have been taken off the poverty line and the feeling is that the future is looking bright.

Some economists are fearful that the currency is overvalued and that a trade row over textile quotas could hit the economy.

But local Chinese entrepreneurs remain bullish on the country's prospects. As do the economists.

One of China's leading economic analysts has said that China is not in danger of overheating and will be able to sustain growth of at least 8 per cent a year for the next decade.

"It is hard to say the Chinese economy is overheated across the board," Yu Yongding, head of the Chinese Academy of Social Sciences' Institute of World Economics and Politics, told a seminar in Seoul recently.

This time last year, the debate was all about hard versus soft landing for the economy as growth surged on the back of an unprecedented building boom and a remarkable wave of foreign investment.

The government's response was to rein in bank lending and raise interest rates slightly.

The State Information Centre (SIC), a top government think tank, believes that weakening investment and industrial output will slow growth to 9.1 per cent in the year through the second quarter.

Jonathan Anderson, an economist at the UBS investment bank in Hong Kong, shares the government's optimistic view on overheating.

"We tend to agree with the Chinese economists. Growth is strong but the composition is good and there are no inflationary pressures. We're very much in the soft-landing camp and we are much more confident than a year ago," said Anderson.

Alan Hobbs, director China for Enterprise Ireland, who has 15 years' experience in the region, believes fundamental confidence in China's growth outlook is reflected in the interest Irish firms have in being a part of it.

"Over the last decade there's been a massive increase in the number of Irish companies doing business in China.

"We've always had companies doing business through Hong Kong, but nowadays they are doing business directly and the companies are a lot more sophisticated and confident," said Mr Hobbs.

There are more than 300 Irish companies operating in China and two-way trade between the two countries was worth about €4 billion in 2004.

Direct trade has risen by more than 1,000 per cent in the last six years and China is on course to overtake Japan as Ireland's main regional trading partner.

"My feeling on growth is that it's even higher on the eastern seaboard where most of our companies are operating. There is a bit of overheating but I'd be more concerned with the emerging wealth gap," said Mr Hobbs.

The visit in January of a huge trade delegation led by the Taoiseach is another sign that China is being viewed as a long-term economic prospect, not just a flash in the pan.

So what of the perceived threats to China's remarkable growth trajectory?

Western countries, led by the US, have been putting pressure on China to let the yuan rise, arguing that a decade-old peg near 8.28 per dollar undervalues the currency and gives Chinese exporters an unfair advantage in world trade.

China has stuck to its guns, however. It has said it would consider its own stability as well as that of the world economy in any decision regarding the yuan, thus paring back hopes of near-term changes in the Chinese currency.

Jonathan Anderson believes there is more than a 50 per cent chance that there will be some currency adjustment this year.

"My vote is for the summer. But then again, there is no guarantee.

"China is not being forced off the peg and it's totally up to the authorities.

"And it could well be a very gradual move if they do go," he said, adding that it would not be more than a couple of per cent, which would have little impact on companies doing business in China.

Most financial chiefs share this view. A recent survey by Duke University and CFO magazine showed that few US chief financial officers believed a revaluation of China's currency would offer any relief to their firms.

The row over textile quotas, where big industrial nations fear being flooded by cheap Chinese textiles, is not seen as a long-term threat either.

"We suggested it as an opening for Irish firms to look at China and get partnerships going. There are already Irish companies sourcing through Hong Kong and a lot of Irish designers are out to get their designs made here," said Mr Hobbs.

Around the corner from the Irish Embassy, the formidable Ms Wang has just moved a flagship Jenny Lou's store into a large premises in what used to be a state-owned high-street bank. She certainly doesn't think the economy is slowing down.