'China economy faces major issues in 2007'

Beijing, Nov 27: Economic imbalances, rapid money supply growth and environmental degradation spurred by unbridled development will be the three major issues dogging the economy next year, a top economist said in remarks published on Monday.

Writing in the China Securities Journal, Zhang Liqun, an economist with the Development Research Centre, said imbalances in international payments, rapid growth in money supply and environmental problems would persist for a time to come.

Still, there were signs that the pace of China's accumulation of foreign exchange reserves could slow next year, given the possibility that growth in exports decelerated as import growth gathered steam, said Zhang, whose think-tank reports to the State Council, or cabinet.

Prospects of slowing global demand alongside factors including the steady appreciation in the yuan would curb export growth as the country imported ever greater quantities of raw materials, he said.

Foreign investment into China would remain robust but would stabilise as the currency appreciated and the government adjusted foreign investment policies. he said.

''Putting the two together, we think that in 2007, China's foreign exchange reserves will continue to rise, but the pace will gradually slow,'' wrote Zhang.

''Problems associated with imbalances in international payments will continue to persist and it will be a long time before this can be solved,'' he said.

Zhang predicted that the Chinese economy would expand at an annual rate of around 10 percent in 2007, fuelled partly by annual growth of around 20 percent in both imports and exports.

Fixed-asset investment would likely grow by some 25 percent on the year while retail sales expanded at an annual rate of around 13 percent. Consumer price inflation was likely to grow by two percent or less.

REUTERS