Economic Forecast

The main priority for the ruling Chinese Communist Party (CCP) over the next two years will be to maintain political stability in order to ensure the success of both the 17th party congress, due in late 2007, and the Olympic Games in the capital, Beijing, to be held in August 2008. As the party congress approaches, the president, Hu Jintao, will continue to strengthen his influence through the appointment of allies to important positions. Real GDP growth will slow slightly from 10.7% in 2006 to a forecast 10.5% in 2007 and 9.6% in 2008. The government will continue in its efforts to rebalance the economy, attempting to make growth less dependent on exports and investment while introducing measures to boost consumption. The current-account surplus is forecast to remain huge, equivalent to 10.7% of GDP in 2007 and 9.8% in 2008. Read original article.

Key changes from last update

Political outlook

Huang Ju, China's sixth-ranked leader and a member of the standing committee of the politburo, died in early June. Mr Huang was seen as a member of the Shanghai faction of leaders loyal to the ex-president, Jiang Zemin. His death will give Mr Hu an opportunity to consolidate his power by appointing a replacement more loyal to the current leadership.

Economic policy outlook

In late May the government tripled stamp duty to 0.3% on all share purchases. Although the move had the initial desired effect, with share prices falling by around 13% in the following week, by mid-June the Shanghai Stock Exchange Composite Index was once again at record highs. Despite rising fears of a possible crash, it is belived that the economic impact of a big fall on the stockmarket would be fairly limited.

Economic forecast

The increase in stamp duty will provide the government with a fiscal bonanza. As a result, we have revised down our forecast for the fiscal deficit in 2007 to 0.7% of GDP, from 1.3% previously