China's growth could dip to a single digit this year

Beijing: A global economic slowdown and fast-rising prices at home may spell the end of China's five-year boom of double-digit growth with low inflation.

The buzzword at a weekend forum in Beijing attended by some of China's leading economists was stagflation - a toxic cocktail of stagnant growth coupled with rising prices that Chinese textbooks portrayed as an insoluble defect of capitalism when it gripped Western econ-omies in the 1970s.

Now the word is entering China's economic lexicon.

"We are facing a stagflation situation. Shall we care more about growth or about prices?" asked Wang Jian, secretary-general of the China Society of Macroeconomics think-tank.

He said weakening external demand stemming from the US credit crisis would expose overcapacity at home in 2008, stalling Chinese growth, while the long-term trend of rising prices for land, labour and resources would stoke inflation.

"If we can't handle this properly, it's hard to say whether we'd be able to cope if there is a world recession," said Wang.

Yu Yongding, a researcher with the Chinese Academy of Social Sciences and a former member of the central bank's monetary policy committee, also used stagflation to describe China's economic outlook this year.

To some extent, Yu and others are taking liberties with language to make their point. No one actually expects gross domestic product growth, which hit a 13-year high of 11.4 per cent last year, to fall precipitously.

But, as Yu said: "For China, a growth rate of less than 9 per cent could be called stagnation, while other countries would regard it as high growth."

Fan Gang, Yu's successor as academic adviser on the monetary policy committee, said growth may dip into single digits in 2008 for the first time in six years. But such a slowdown would be welcome as it would help to relieve inflationary pressures.

"A growth rate of more than 11 per cent is certainly too much; even if we come down to 10 per cent or 9 per cent, it's still high," Fan said in an interview with the portal Sina.com.

"But if you don't adjust now, there will be a crisis when the economy overheats," he said.

Beijing came into 2008 committed to a tighter monetary policy to prevent just such an overheating and to stop inflation spreading from food. The CPI rose 4.8 per cent last year, an 11-year high, due largely to dearer food.

Mounting signs of weakness in the US economy, coupled with temporary disruptions to output at home caused by blizzards, are raising expectations in markets that the People's Bank of China might row back.

But Xia Bin, a researcher with the Development Research Centre, a think-tank under the State Council, China's cabinet, said monetary policy would remain tight.