Li Deshui (2nd R Front), director of China's State Bureau of Statistics, speaks to reporters after a news conference on China's economic functioning situation in 2005, at the Information Office of the State Council in Beijing, Jan. 25, 2006.

China's economy expanded by 9.9 per cent in 2005, buoyed by strong domestic demand that economists believe would continue to drive dynamic growth this year.

The National Bureau of Statistics (NBS) announced yesterday that the country produced an output of 18.23 trillion yuan (US$2.23 trillion) last year, or a per-capita gross domestic product (GDP) of US$1,700.

Economists' predicted growth figure for 2006 varied from 8.5 per cent to more than 10 per cent. But they agreed the economy is riding momentum and will continue to be vibrant this year.

The adjustments that the government initiated in 2004 continued to suppress activity in overheated sectors such as the steel industry last year. However, investments in other sectors remained robust, said NBS Director Li Deshui.

Growth in consumption and exports were also respectable, he said.

"All three main drivers for the economy (investments, consumption and net exports) were in good shape," he said at a press conference hosted by the State Information Office. "The economy is full of vitality."

Economists agreed that overall domestic demand has been favourable and is improving.

A research note released yesterday by a group of economists at Goldman Sachs said they believed the GDP grew last year partly because of domestic demand.

It was the third year that China's economic growth rate was around 10 per cent.

It grew 10 in 2003 and 10.1 per cent in 2004.

The rates were much higher than those of most other economies in the world. But China's rates were still quite close to what economists call potential growth of the country, which means a growth pace that can be maintained without running into macroeconomic problems such as high inflation, according to Louis Kuijs, senior economist at the World Bank's Beijing office.

He said China's potential growth in recent years has been between 9 and 10.5 per cent.

"Thus, from this perspective, (China's) growth (rate) was appropriate not too low, not too high."

Quarterly GDP growth rates for all of 2005 were more balanced than in previous years, which indicated economic growth was becoming increasingly stable, said Niu Li, an economist with the State Information Centre.

Rates for the four quarters were between 9.8 per cent and 10.1 per cent. In previous years, fluctuations could be 1 percentage point or even bigger.

"This means that the intrinsic power of the economy mainly market forces instead of factors outside the economy was having a greater influence, which was a good thing," Niu said.

Another encouraging development in last year's economic performance was the decline in oil consumption and oil exports.

In 2004, China's consumption of crude and refined oil grew 15.3 per cent compared with 2003. The net import (import minus export) figure jumped by 41.5 per cent.

In 2005, the consumption rate dropped 0.5 per cent and the net import 5.3 per cent compared with 2004. "This dramatic change indicated we are able to maintain rapid growth while reducing consumption of energy and other resources," Li said.

However, the economic picture is not completely rosy.

Consumption still had a relatively weak effect on domestic demand, which is an undesirable scenario, economists said.

Investments, which cover mainly building and upgrading infrastructure, plants and apartments, contributed 48.8 per cent of the 2005 GDP growth. Consumption, which the government has been trying hard to stimulate, accounted for 33.3 per cent. The remaining 17.9 per cent was from trade.

Source: China Daily