The Asian Development Bank (ADB) has reduced its prediction of China’s economic growth this year by 0.2 percentage point, taking into account the impact of SARS.

An ADB report on the development of Asia in 2003, released on April 28, predicted that the growth of China’s GDP for this year would be 7.3 percent, lower than last year’s 8 percent. It also estimated that the growth of China’s GDP for 2004 would stand at 7.6 percent.

According to the report, China’s economy maintained the trend of rapid expansion in 2002, with the growth rate reaching an all-time high in the previous five years. China’s foreign trade has increased noticeably, foreign direct investment chalked up a historic record and domestic demand soared. The influx of foreign direct investment is expected to offset the declining trade surplus under the current account caused by deteriorated imbalance in foreign trade. In 2003, China’s trade surplus under the current account accounted for about 1.6 percent of the GDP, against 1.9 percent in 2002. China’s trade partners worldwide, particularly those in Asia, must seize the opportunity of its rapidly expanding domestic market. In 2003, the growth of China’s imports will exceed that of exports, which will cut the country’s trade surplus. China’s imports are expected to grow by 12 percent and 14 percent in 2003 and 2004 respectively.

The report noted that the state treasury would face increasing pressure, as state-owned banks require more capital input and the building of a social security system needs more funds. In spite of the impact of SARS, China’s domestic consumption will maintain steady growth.

According to the report, China now faces the following challenges: creating sufficient jobs to absorb newly added labour force, part of the workers laid off by state-owned enterprises and part of the rural surplus labourers; improving the legal framework and the executive system to provide private sectors, the main job suppliers, with a better development environment; respecting contracts, eliminating counterfeit and shoddy products, protecting intellectual property rights, removing obstacles to fair competition, combating corruption and establishing standard accounting and auditing rules; narrowing the gap between eastern coastal areas and inland poor regions and that between the incomes of urban and rural areas, and reducing poor population; and eliminating the weaknesses of the financial system. The poor operation of the banking sector and the huge amounts of non-performing loans have lowered the efficiency of the financial system and created difficulties for private business and farmers in financing.