China Economic Forecast

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The main priority for the ruling Chinese Communist Party over the next two years will be to maintain political stability in order to ensure the success of its 17th party congress, due in late 2007, as well as the Olympic Games in the capital, Beijing, in August 2008. As the party congress approaches, the president, Hu Jintao, will continue to strengthen his influence through the appointment of allies to key positions. Real GDP growth will slow from an estimated 10.5% in 2006 to 9.5% in 2007 and 9%
in 2008. The government will continue in its efforts to rebalance the economy, as it attempts to make growth less dependent on exports and investment, while introducing measures to boost consumption. The current-account surplus will narrow from an estimated 7.8% of GDP in 2006 to 6.3% of GDP in 2008.

Key changes from last update

Political outlook
Police raided an alleged terrorist camp in Xinjiang province in January, killing 18 people and arresting many others. The authorities claimed that the base was run by the insurgent East Turkestan Islamic Movement, and that evidence of links to international terrorist groups had been uncovered.

Economic policy outlook
Amid continuing government concern over the high level of investment in real estate, the State Administration of Taxation announced that it would toughen implementation of the land appreciation tax. The tax, which can amount to as much as 60% of the difference between a property's sale price and development costs, is currently only patchily enforced.

Economic forecast
Following the government's announcement that tax revenue (excluding customs duties and agricultural tax) expanded by 21.9% in 2006, the Economist Intelligence Unit has revised its estimate of the budget deficit in 2006 from 1.2% of GDP to 0.8%. The forecast deficits for 2007 and 2008 have also been reduced, to 1.6% and 1.8% respectively.