Economy in Post-SARS China Taking off 'Like a Rocket': USA Today

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Last updated at: (Beijing Time) Wednesday, June 25, 2003

Economy in Post-SARS China Taking off 'Like a Rocket': USA Today

China has weathered the financial fallout from the SARS virus so well that some economists now worry crucial sectors are at risk of overheating.

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China has weathered the financial fallout from the SARS virus so well that some economists now worry crucial sectors are at risk of overheating.

''China is rising like a rocket,'' says Jonathan Anderson, head of Asia-Pacific economics at UBS.

The SARS epidemic, which shuttered Beijing's retail businesses and cut foreign tourist arrivals, cooled an economy that had a 9.9% first-quarter growth rate.

Now, economists who were cutting growth forecasts are raising them. The World Health Organization lifted the SARS travel advisory on Beijing Tuesday.

''What you took away, you're going to have to give back,'' says Tim Condon, ING Barings' chief Asia economist.

Halfway through the year, most expect Beijing to meet or exceed its 7% growth target.

Signs of China's renewed surge:

** Exports are up 34% this year. A stronger euro, which makes Chinese products less expensive for European buyers, has helped boost exports to the European Union by 45%. Exports to the USA are up 35% and on pace to top last year's $125 billion. That means China could overtake Mexico as the USA's second-largest source of imports, says Morgan Stanley's Andy Xie.

** Investment in fixed assets -- factories, machinery and equipment -- jumped 32% the first five months of 2003.

* Electricity demand, a barometer of industrial activity, is up 15%.

One worry is that China's sizzling market for high-end residential property could overheat. Outside Beijing, scores of new villa compounds aimed at expatriate executives and affluent Chinese are rising even as existing units sit vacant. In Shanghai, a widening investigation of a major developer casts a chill.

''The property market is about to see another slide,'' says Dong Tao, chief regional economist at Credit Suisse First Boston.

And as China grabs larger global manufacturing market share, it is coming under pressure to revalue its currency to make its exports more expensive. The Chinese yuan is effectively pegged at 8.28 to $1.

The dollar's plummet against other major currencies this year has not been matched by any change in the dollar-yuan exchange rate. That has given Chinese exports to the USA an artificial lift, though economists say even the modest rise in the yuan's value being discussed wouldn't significantly help U.S. manufacturers.

Many U.S. manufacturers want China to let the yuan float or appreciate against the dollar. The issue is complicated: More than half of exports from China to the USA are produced by multinational corporations. So while some U.S. manufacturers are hurt by China's undervalued currency, others are helped.

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