ADB predicts 7.5pc economic growth in E Asia

Hong Kong, July 19:

Developing East Asian economies should grow an average 7.5 per cent this year, the Asian Development Bank (ADB) said today, but warned China to rein in its overheating economy.

The Manila-based bank also urged South Korea to keep close watch on corporate governance and expressed concern about political uncertainty and high public spending in Taiwan. Masahiro Kawai, head of the bank’s Office of Regional Economic Integration, said that while East Asia’s overall economic outlook is positive, its biggest engine, China, needs to restrain its robust growth. “A high growth rate is good for the rest of the Asian economies, but it’s in the best interest of everybody to see China’s sustained, stable growth rates, and the current growth rates are a bit higher than sustainable,” he said, “We have not quite seen the direct impact of monetary tightening so far. The current monetary policy tightening appears to be insufficient,” Kawai said, addi-ng an April hike in interest rat-es has not tamed loan growth. Earlier, China announced its economy grew a stunning 11.3 per cent in the second quarter from a year ago.

When told about the new growth figures, Kawai exclaimed, “Oh wow.” He added that ADB expected a lower figure but that it stands by its projections released today, including forecasts that China will grow by 10.1 per cent this year and nine per cent in 2007.

In Beijing, Zheng Jingping, spokesman for China’s National Statistics Bureau, said the country can sustain ‘fast and stable growth’ but must control a construction boom and rapid credit growth to prevent inflation, which so far hasn’t emerged as a problem. In the first half, inflation rose just by 1.3 per cent, according to figures released in Beijing.

Kawai urged the Chinese government to combat overheating by setting stricter reserve requirements for banks, raising interest rates further and allowing the yuan to appreciate more.

Noting that returns on new investments in China was declining, Kawai said Beijing should shift of investment to ‘high-quality’ investments in environmental protection, energy efficiency, human capital and strengthening the social safety net in rural areas.

“There are many inefficient investment activities going on,” Kawai said. He also said China should scale back its pace of foreign currency reserves, which is on pace to surpass $1 trillion this year. East Asia as a whole has benefited from the broad economic expansion in major industrial countries and the rebound of the global technology industry, the ADB said.

It projected that as a region East Asia will expand an average of 7.5 per cent this year, but that growth will slow to 6.9 per cent in 2007 due to receding growth in the US, Japan and China. In other economies, the report urged South Korea to keep watch on inflation, corporate governance and rising property prices.

“Structurally, investment is constrained, in part, by problems in corporate governance, recently demonstrated by high profile government cases against both domestic and foreign firms,” the report said.

Among recent scandals, the chairman of Hyundai Motor Co, South Korea’s largest carmaker was jailed amid accusations he helped create a slush fund to curry government favours. The bank predicts the South Korean economy to grow by 5.1 per cent this year from four per cent last year.