Geneva: China will underpin Asia-Pacific economic growth in 2007 but could face social tensions if unchecked expansion causes its economy to overheat, a United Nations report said on Wednesday.
Economies in the Asia-Pacific region are set to grow by 7.4% in 2007, underpinned by continuing expansion in China, India and Japan, the UN said in its Economic and Social Survey of Asia and the Pacific 2007.
The growth rate is slower than the 7.9% recorded in 2006, due to an expected slowdown in the United States and Europe, along with falling commodity prices.
“As the international economic environment weakens, momentum in the region is expected to come from China, India and Japan. Together, these three economies contribute over 60% of the gross domestic product (GDP) of the Asia-Pacific region and close to 45% of imports,” the report said.
Chinese growth is seen at about 9.9% in 2007, down from 10.7% in 2006, with exports and investment still the driving forces.
“There is a risk of further acceleration in investment growth resulting in overheating of the Chinese economy,” the report warned.
If Chinese GDP growth declined to 7%, net exports in developing Asian economies would fall by almost two percentage points and GDP growth by 0.2 percentage points, it predicted.
UN economist Cape Kasahara told journalists that such a development would also have political repercussions as the social tensions caused by China’s economic transformation come to the fore.
“Privatisation of the public-owned enterprises is creating disruptions of the public fibres,” he noted, with income distribution, environmental pollution and unemployment also causing tensions.
China’s exposure to foreign ideologies and influences within a globalised environment could also have far-reaching consequences for the country’s authoritarian government, he added.
“As people become more and more aware of the international environment and are having a more sensitised, democratised concept, people may start questioning and maybe 1989 could be revisited,” Kasahara said, referring to pro-democracy protests in Beijing’s Tiananmen Square which were crushed by the Chinese military.
India is expected to grow by 9.0% led by services and accelerating industrial production, while Japanese growth is seen falling to 1.9% due to ongoing fiscal consolidation, exchange rate appreciation and the US slowdown, the report said.
Inflation is seen as less of a problem than in previous years due to a fall in oil prices and tight monetary policies in the region.
Exchange rate fluctuations are by contrast a key area of concern, after many Asian currencies appreciated significantly against the US dollar in 2006 — a trend which is set to continue in the current year.
A moderate decline in global electronics demand in 2007 may dampen the region’s prospects, it added.