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Powerhouse China still at the helm in Asia, says S&P

(Shanghai Daily)
Updated: 2006-12-13 10:06

China will remain the key growth engine for Asia Pacific in 2007 with the economy expected to grow 10 percent amid improving financial markets, an industry report said yesterday.

Chinese gross domestic product growth is likely to reach 10.5 percent this year while its economic growth in 2007 should hit close to 10 percent, Standard & Poor's said, citing continuing macro measures, tightening fiscal policy, and a bullish stock market.

The economic slowdown in the United States is expected to dampen China's growth momentum only marginally.

The outlook on China's banking industry is positive. "Reform efforts by the rated banks are producing some tangible benefits," the report said.

China has injected US$60 billion into its debt-laden banks, pushing them to restructure, and introducing fresh discipline.

Lending is likely to grow in a more controlled manner in 2007, as the government is expected to continue to manage the economy to avoid overheating and overcapacity in some industries, the report said.

China opens its banking sector to overseas players on Monday under its World Trade Organization commitment.

"The sector's risk-management capability is little tested and remains a key rating factor," said Ryan Tsang, a Standard & Poor's director. "Slowdown in economic growth could turn the sector's large portfolio of special-mention loans into bad loans."

The view is echoed by Citigroup Inc.

"The opening up of the banking sector, however, could magnify the risks to individual banks," Citigroup said. "Regulators will likely aim to improve the efficiency of the entire banking sector while making bankruptcy an option of last resort."

The risk of a bank crisis in China is low in the near term but could rise as the banking sector becomes more open, said Citigroup.

Standard & Poor's expects growth in the China insurance industry to remain strong due to its low penetration and the flying economy.

The country's economy gained 10.7 percent in the first three quarters.


(For more biz stories, please visit Industry Updates)



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