In 2008, the Chinese economy will remain stable and retain high growth. It is expected that the growth of the gross domestic product will drop slightly, the increase of the consumer price index (CPI) will slow, fixed assets investment will cool down and the growth of the trade surplus will fall, according to a report issued by the State Information Center.

Consumer market remains prosperous

Years of prosperity in the macroeconomy, high employment growth, rapid growth of individual income and the upgrading of consumption structure will continue to push forward consumption. All these factors will contribute to the growth of

China's consumer market in the next year.

Moreover, the 2008 Olympic Games to be held in Beijing will also promote the domestic sales market.

The leading indicator of retail sales of consumer goods has increased between 2006 and 2007. Since the leading indicator shows the trend about one year in advance, it can be concluded that in 2008 retail sales of consumer goods will still grow rapidly.

Based on the research by the State Information Center of the potential growth rates of retail sales of consumer goods since reform and opening up in the late 1970s, a growth rate of about 12 percent for retail sales of consumer goods is adaptive to the 10-percent growth of GDP. Since retail sales of consumer goods increased more than 12 percent in real terms in 2006 and 2007, there is little likelihood that retail sales of consumer goods will grow more rapidly.

It is estimated that in 2008 the nominal growth rate for the retail sales of consumer goods will be 15.8 percent, 0.6 percentage points lower than that of 2007. However, the real growth rate should be around 12.5 percent after deducting price factors, almost the same as in 2007, a high but normal rate.

Investment to drop slightly

In 2008, basic factors leading to high growth of fixed assets investment will still exist. Under a rapid increase of corporate sales revenues and profits, companies are highly motivated to invest. At the same time, the rapid growth of self-owned capital provides sources for companies to enlarge investment. Month-by-month increases of newly started projects since the second half of 2007 provide inertia for the growth of investment in 2008.

However, there are some factors that may restrict investment in 2008. Since the central bank has frequently raised interest rates recently, the increase of the actual interest rate level may restrain investment by companies. Owing to the accumulated risks in the real estate market and the warnings brought by the U.S. subprime crisis, authorities such as the China Banking Regulatory Commission have strengthened monitoring efforts on housing loans and prudent policies on granting loans will pose some restrictions on the source of funds to real estate developers and house-buyers. Meanwhile, restrictive policies on the export of energy-consuming products may change the supply-demand situation and prices in these industries, reducing the expected returns of investment.

Considering various factors, it is expected that fixed asset investment growth will still be a little bit on the fast side and to curb the rapid increase of fixed assets investment will remain an important task of macro control. It is estimated that in 2008 the nominal growth of fixed assets investment will stand at 23.5 percent, 2 percentage points lower than that in 2007. Of the total, fixed assets investment in urban areas will grow 24 percent nominally, a decline of 2.3 percentage points. The nominal growth of real estate investment will reach 25 percent, dropping 4.5 percent than 2007.

Trade surplus falls markedly

In 2008, the growth of China's exports will slow.

First, trade protectionism in the international community has risen again and trade frictions with China, particularly

the media scrutiny over the quality of Chinese products, are increasing and

could impose great negative influence on China's exports in 2008.

Second, China's exports to the United States are mainly consumer goods and U.S. consumption growth is likely to slow, so this could be unfavorable to China's export growth.

Third, intensive policies launched in 2007 to control rapid export growth and the readjustment of foreign trade structure will show effects in 2008, renminbi appreciation is speeding up, and various production costs are increasing. All these factors will slow down China's export growth in 2008.

On the other hand, since domestic demand will likely retain high growth, renminbi appreciation shortens the price gap between domestic and foreign markets and the state has issued other policies to encourage imports, meaning the growth of imports will remain stable in 2008.

Preliminary estimates are that in 2008 China's exports will grow 19 percent and imports will increase 18 percent, with the trade surplus standing at $328.4 billion, $60.4 billion more than that of 2007. The growth of trade surplus will drop from 51 percent in 2007 to 22.5 percent in 2008.

Influenced by international factors

If influences of the U.S. subprime crisis are as predicted and effects of the macro control measures proceed normally, China's economy in 2008 will remain stable and continue high growth with the growth rate dropping slightly. GDP may grow 10.8 percent year on year in 2008, lower than the estimated 11.4 percent in 2007.

If adverse effects of the subprime crisis are lower than estimated and the effects of macro control measures are not obvious, China's economy will still remain high growth in 2008. GDP may increase 11.3 percent, almost the same as in 2007.

If influences of the subprime crisis are more serious than expected and effects of macro control measures are very obvious, China's economic growth may drop to 10.3 percent in 2008.