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Economy faces testing times, official says

BEIJING: China's economic development faces complex internal and international challenges, as increasing costs and a rising currency make it increasingly difficult to maintain stable industrial growth, according to an industry ministry official.

Zhu Hongren, a spokesman for the Ministry of Industry and Information Technology, said the world's second-largest economy was at a critical stage of shifting from stimulus- and policy-driven growth to self-sustaining growth. However, Zhu, who is also the ministry's chief engineer, told a briefing yesterday that industrial output was still expected to grow 13.5% this year.

Despite sounding a warning on the challenges to the industrial outlook, Zhu also painted a rosy picture of the car industry, the fastest-growing in the world.

Car sales will likely be around 17 million this year, up 25% from 13.6 million units last year. China overtook the United States last year to become the largest car market in the world. However, the industry should now focus on environmental and energy limitations to continue the strong growth in sales, Zhu said.

The appreciation of the yuan, he added, had had a clear and direct impact on company profits, with exporters concerned about the impact of fluctuations in the exchange rate on large long-term orders that they are filling.

Beijing ended a de facto dollar peg in mid-June and has accelerated the pace of yuan appreciation since September amid rising pressure from main trade partners, especially the United States. The yuan strengthened 2.3% between Sept 1 and Oct 22, causing a higher inflow of speculative capital betting on further yuan gains and increasing pressure on exporters, analysts said.

However, it fell to a three-week low against the greenback this week.

Zhu also said a slowing global economic recovery and rise in trade disputes targeting the country, meant the mainland economy faced a tougher and more complex external environment.

The mainland's trade surplus shrank in September as exports and imports slowed sharply, official data showed on Thursday, Oct 28, but the decline was unlikely to ease international pressures on Beijing to let its currency appreciate more rapidly. China is likely to face demands for currency action at the Group of 20 meeting in South Korea and at the Asia-Pacific Economic Co-operation (Apec) summit of leaders in Japan next month.

Pressure from US lawmakers for action has mounted amid signs that the US economic recovery is faltering ahead of November elections. The House of Representatives passed legislation on Sept 30 to allow Washington to sanction governments that manipulate their currency for trade advantages.

On Oct 15, the US Treasury Department delayed issuing a report required by Congress about which countries are manipulating their currencies. Instead, officials praised the recent appreciation of the yuan but said it needed to continue.

Zhu said the government was still formulating energy and emissions targets for its 12th five-year plan, which runs from 2011 to 2015. The new targets will be announced along with the full five-year plan at the meeting of the National People's Congress early next year.

The previous five-year plan targeted a 20% reduction in energy consumption per unit of gross domestic product from 2005 to 2010.

At the end of the first half of this year, energy intensity was down 15.6% from 2005 levels. — South China Morning Post
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