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China's hot pace likely to cool

Xie says investing in China is a 'competitive necessity'.
Xie says investing in China is a 'competitive necessity'.

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SARS FACTS

Suspect case: A person who develops high fever (greater than 38 C / 100.4 F) and respiratory symptoms such as cough, breathing difficulty or shortness of breath, within 10 days of

1) having had close contact with a person who is a suspect or probable case of SARS.
or
2) having traveled to or resided in an affected area.

Probable case:  A suspect case with chest X-ray findings of pneumonia or respiratory distress syndrome.

BEIJING, China (CNN) -- China's economy grew at an annual rate of almost 10 percent in the first three months of the year, the National Bureau of Statistics said Thursday.

That compares with 8 percent last year and is the fastest rate in six years. But analysts warn of a cooling ahead, because of the impact of the deadly SARS (Severe Acute Respiratory Syndrome) virus on tourism and investment.

Preliminary figures show China's gross domestic product (GDP) reached 2.356 trillion yuan (about $285 billion) in the first quarter, up 9.9 percent from the same period last year, the National Bureau of Statistics said in a statement.

China's red-hot growth was built on investment and consumption, but analysts say the pace will slow for the rest of 2003 as SARS takes its toll.

SARS already has claimed more than 160 lives worldwide, according to the World Health Organization, with most of them in China and Hong Kong. The flu-like illness is thought to have originated in south China's Guangdong province, adjoining Hong Kong.

Morgan Stanley's Hong Kong-based economist Andy Xie told CNN Thursday that while China's growth momentum was still strong, SARS would have a "significant effect" in the second quarter and probably in the third quarter as well.

He said one of the main impacts was that multinational corporations were keeping their executives away from China, which meant a deferral of overseas direct investment.

But Xie stressed that in the long-term, investing in China was a "competitive necessity" for multinationals.

In an accompanying commentary on the SARS impact on China's direct investment inflow, Xie said China's competitiveness gap with other countries was widening, rather than narrowing.

"As long as prices are set by China's costs, it is suicidal to build up capacity elsewhere unless they have the cost structure to match China's," he noted.

Xie said China was also spending large amounts on infrastructure, including roads and power production.

That was confirmed by Statistics Bureau figures Thursday showing fixed asset investment, a rough gauge of government spending on infrastructure, rose 27.8 percent in the first quarter of 2003, compared with a year earlier.

Bureau spokesman Yao Jingyuan told a press conference that SARS would have an influence on China's economic performance, but said it was still too early to make any predictions on the impact on overall growth for 2003.

Yao also said in a statement quoted by Reuters news agency that first-quarter retail sales rose 9.2 percent, in line with Beijing's target.

Analysts had expected that growth, citing strong sales of cars, homes, appliances and electronics such as mobile telephones, Reuters said.

The consumer price index, which covers a basket of goods and services from grain to school fees, rose 0.5 percent in the first quarter, showing China has managed to hold at bay the mild deflation that nagged the economy throughout last year.

Xie said that the SARS crisis would delay some investment and slow the economy this year. But more importantly, he said it had exposed another risk to doing business in China -- that decisions had to be made at the top, which undercut the country's ability to respond to a crisis like SARS.


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