Last year, China's economy increased by 8 percent, following growth of 7.3 percent in 2001. Rising fixed-asset investment by government, foreign and private companies are credited with fueling growth.

There are some problem areas in the economy, however, as the government has intervened in the overheated real estate market by tightening the flow of loans to developers.

The growth of investment in real estate dropped from 40 percent last April to 25 percent in December, the report said.

The outstanding value of housing loans owed by real estate developers reached 497.4 billion yuan (US$60 billion) by the end of September. The average debt to asset ratio of domestic real estate companies is 72 percent, with the highest reaching 94 percent, the report said.

"That large amount is dangerous for banks as the credit of the developers is questionable," said Yang Shen, chairman of the China Real Estate Association.

An uncertain global economy also poses risks to China's export sector, which is heavily dependent on the United States and Japan, according to the report.

Exports are predicted to grow a conservative 10 percent this year, compared with more than 20 percent in 2002.

Many domestic economists are more optimistic than the government report.

Song Guoqing, an economist with Beijing University, who succeeded in forecasting 8-percent economic growth in early 2002, told Shanghai Daily yesterday that he expected China to maintain a growth rate of 8 percent this year.

His forecast is in line with Qiu Xiaohua, deputy director of the National Bureau of Statistics, who said in a recent interview on CCTV that China's GDP will maintain an 8 percent growth rate in 2003.

Qiu said the government will continue to stimulate spending by building more roads, dams and airports, and the economy would generate 9.5 million new jobs this year.

Last year, China posted a record 309.8 billion yuan budget deficit as it spent more on public-works projects and other measures to spur consumer demand and battle unemployment.

Song said the government's control of real estate investment should not hurt total investment much, because the developments currently under construction provide a large cushion.

Deflation is another problem the country hopes to solve this year.

Consumer prices have been falling since February 2002.

In the first 11 months of last year, China's consumer price index dropped 0.7 percent.

"In the first half (of this year), consumer prices should continue to fall, but the situation will be reversed in the second half, when deflation will end," Song said.

(Shanghai Daily January 8, 2003)