Goldman Sachs: China to outrun Japan in forex reserves in Q1

Goldman Sachs points out in a latest report that if the external imbalances remain as against China's economy, one year later the exchange rate of Renminbi to US dollar will rise to 7.34, Shanghai Securities News reported Monday.

The company also predicts China overtaking Japan in the first quarter this year to be the largest holder of foreign currency reserves. China's GDP growth in 2006 and 2007 will drop to 9.6 percent and 9.1 percent respectively, says the report.

As stated in the report, starting from this year, the prices of China-related capitals have kept rising, one important reason for which is that the outside world has made positive evaluation on China's economy. International investors regained confidence, and signals of China's adjustment in its domestic policy constantly have been made known -- these helped boost the prices of goods and stocks related to China.

The fresh understanding of China's economy, on the one hand, is seen in the lessened worries about China losing balance in its economy, which made people believe the economy can continue growing in the foreseeable future. On the other hand, the government's policy to shift the pattern of economic growth, more and more understood by international investors, injected confidence.

Previously, it has long been believed that China's GDP growth is so dependent on high investment that once the government controls fixed-assets investment, GDP growth will slow down drastically. The report says the adjusted economic statistics after the nationwide survey show that during the past ten years, the ratios of consumption and investment are more balanced than previously predicted.

In the past 27 years, China's average GDP growth is 9.6 percent. Goldman Sachs believes China has surpassed any other economy with such as rate and duration. This also shows the Chinese economy is healthier than some imagined.

Goldman Sachs therefore altered its prediction on China's GDP. Based on China's new statistics, Goldman Sachs forecasts a 10-percent GDP growth in 2005, 9.6 percent this year and 9.1 percent next year. Its previous forecast was 9.0 percent and 8.5 percent.

Apart from an optimistic prediction of China's economic growth of over nine percent to 2007, Golden Sachs also shows great worries about the external imbalances against the country's economic development.

The report says China's economy has serious problems as shown in indicators such as the ratio of trade and current-account surplus to GDP, balance of international payments and the growth rate of foreign exchange reserves.

Goldman Sachs predicts the ratio of China's foreign trade surplus to GDP would be as high as 4.6 percent, while that for all its international payments around 10 percent. The report also expects that China overtake Japan to be the world's largest holder of foreign reserves by the end of the first quarter.

Concerning pressure over Renminbi appreciation as a result of external imbalances, Goldman Sachs shows no optimism either, predicting Renminbi rate against US dollar rise to 7.34 in twelve months, which means a rise of 9.87 percent as compared with the middle price of 8.0648 last Friday.

By People's Daily Online