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Management reports, briefs issued by Samsung Economic Research Institute

Ten Issues Facing China's Economy in 2007

Ten Issues Facing China's Economy in 2007

CHUNG Sang-Eun

Dec. 18, 2006

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Over the past few years, disputes have arisen over whether the Chinese economy would make a soft or hard landing. However, China is projected to grow 10.5% in 2006, achieving double-digit growth rate for the fourth straight year. In 2006, China has made further achievements on its march to become one of the world's largest economies. First, China holds the world's largest foreign exchange reserves, exceeding US$1 trillion as of December 2006. In addition, China is the world's third-largest exporter with a total export volume of US$950 billion in 2006, while becoming the world's fourth largest in terms of real GDP amounting to US$2.6 trillion.

However, China's spectacular export-driven economic growth, in conjunction with a pegged currency regime, has exacerbated existing global imbalances. Also, Chinese companies' heavy investment in manufacturing sectors has widened the gap between manufacturing and other sectors as well as resulted in environmental degradation. Economic polarization and widening income inequality is the other side of rapid economic growth.

In 2007, China will make an effort to improve economic fundamentals and continue on its path to becoming an economic power. Chinese President Hu Jintao is expected to assume a second five-year term at the 17th National Congress of the Communist Party of China in 2007, shifting the policy priority on achieving sustainable growth. During his first term, Hu has strived to strengthen bilateral and regional economic cooperation, while stressing the need to improve the “quality” of economic growth. In order to achieve this end, the government is expected to develop homegrown technology standards, change existing foreign direct investment guidelines to favor firms that engage in technology transfer, and strengthen environmental regulations. Also, it will pursue balanced national development in order to ease economic polarization.

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