China think-tank sees slower growth in 2007

SHANGHAI, Oct 11 (Reuters) China's economic growth is likely to slow modestly to around 10 per cent in 2007 from 10.5 per cent this year as government tightening measures kick in, a top government think-tank said in a report published on Wednesday.

The cabinet-backed Chinese Academy of Social Sciences (CASS) said a more flexible yuan and higher interest rates would be needed to ward off a possible rebound in fixed-asset investment and keep the economy on a healthy track.

''GDP growth this year is forecast to rise 10.5 percent, but growth is likely to slow to 10.1 percent next year due to macro-economic measures,'' CASS said in a research report published in state newspapers.

If CASS is right, China is on track to enjoy five consecutive years of double-digit growth. Gross domestic product expanded 10.2 percent in 2005, 10.1 percent in 2004 and 10.0 percent in 2003.

The think-tank said the risk of overheating is decreasing, thanks to a raft of cooling measures taken by the authorities, including tighter monetary policy and a clampdown on investment projects that do not meet land-use and environmental criteria.

''But upward pressure on fixed-asset investment is still great and we must resolve the problem of the rising ratio between investment and GDP,'' it said.

China's overall fixed-asset investment was likely to rise 24.8 percent this year and 20.4 percent in 2007, bringing the investment-to-GDP ratio to about 60 percent next year, it said.

The researchers forecast consumer prices to rise just 1.3 percent this year and 1.1 percent in 2007.

China's trade surplus is on course to hit a record 8 billion this year, up from 2 billion in 2005, before narrowing to 3 billion in 2007, CASS said.

CASS urged structural changes to encourage household consumption. To help cool the property sector, it called for a new tax on non-owner-occupied homes and the construction of more affordable housing.

REUTERS DH RAI0716