China's economy shuns world and soars

By CNN's Marianne Bray

BEIJING, China -- Bucking a global slowdown China has said its economy grew 7.9 percent in the first half of the year compared to the same period in 2000.

And as its Asian neighbors slash growth forecasts amid a skidding U.S. and Japanese economy, China is remaining upbeat, saying it is being given an additional shot-in-the-arm by the 2008 Beijing Olympics.

China's State Statistical Bureau says growth for the full year could surpass the officially forecast seven percent, although it hedged its bets by saying a slumping global economy could change the picture.

China stands out from its neighbors because of the strength of its domestic economy, underpinned by massive government infrastructure investment.

Olympic boost

Bureau spokesman Ye Zhen called the year-on-year expansion of gross domestic product (GDP) a "hard-won success" amid the tough global climate.

"China is a big country with population of 1.3 billion and our domestic demand is vigorous," he said, estimating that domestic demand accounted for 93 percent of GDP growth.

But Ye said policymakers would have to pay close attention to falling demand from Japan and the United States and to slow growth in rural incomes.

"If the world economy does not deteriorate further, the weather stays normal and macroeconomic measures are effective, full year economic growth can still meet or surpass the initial target of seven percent," Ye told reporters.

He predicted the Beijing 2008 Olympics would add an average annual boost of 0.3-0.4 of a percentage point to China's economic growth over the next seven years -- a shade higher than the forecasts of leading private economists.

The International Olympic Committee voted to award Beijing the Games last Friday. Expectations of a Beijing win sent share prices surging in Chinese tourism, transport and construction companies.

China's GDP rose a year-on-year 7.8 percent in the second quarter of this year, Ye said. It grew a year-on-year 8.1 percent in the first quarter, which was faster than expected.

Retail sales, an indicator of consumer demand, rose 10.3 percent in the first half of this year -- further evidence that China has largely shaken off three years of price deflation with sustained state spending and measures to encourage consumption.

By contrast, China said last week that exports slipped 0.6 percent year on year in June -- the first fall in two years -- because of weak demand from Japan and the United States. In the first half, exports rose 8.8 percent to $124.57 billion.

Countryside concerns

A chief economist at the China Stock Exchange Executive Council, a private think-tank, said aggregate demand in the first half was the highest in recent years.

"The property market is booming across the country, which has boosted demand for building materials and other goods," Song Guoqing said.

But Song questioned how long the government could remain the spender of last resort.

Many analysts see a mixed picture for consumer spending, with city dwellers spending while rural people are held back by slower income growth.

The bureau said urban retail sales rose 11.6 percent in the first half, while in rural areas they rose 8.1 percent. City incomes were up 5.5 percent in the six-month period while rural income grew 4.2 percent.

China's pending entry into the World Trade Organization, although expected to be a boon for the overall economy in the long term, may have the earliest and hardest impact on the countryside as inefficient farmers face cheap imports of grain.

Reuters contributed to this report.