In his two recent articles published consecutively, Stephen Roach, Morgan Stanley's chief economist, raised the possibility of something "impossible" to be made reality, a slowdown of China's economy.

Roach thinks that China's economy is depending too much on exports and fixed asset investment with both of which possibly facing pressure concurrently. He warns the Chinese government would have to respond to the risk of lack of growth driving force if it made concessions on the currency issue following elimination of bubbles on the real estate market.

Observing the 36 percent of China's GDP from its exports, 44 percent from fixed asset investment including 20 percent generated by spending spree in property, Roach predicts a slowing momentum for China's exports because of foreign trade frictions and a substantial moderation of fixed asset investment as a result of the measures reining in the property sector. They would likely combine to affect the GDP growth.

Roach's voice has been echoed by some Chinese experts who are worried about less export in the next quarter and confined domestic demand which would lead to a downturn. Some even called for attention to a deflation which would be even more difficult to deal with than inflation.

Roach is concerned about the supply chain in Asia which would be hit hard if China's economy cooled down. It would further affect the global GDP growth, Roach writes.

He says China's economy is facing a completely new, harsher challenge and will find it more difficult to prevent a substantial slowdown than ever.

Zhou Xiaochuan, Governor of the People's Bank of China , also recognized the necessity of further steps checking fixed assets investment and stimulating the domestic demand.

However, he does not think there is a slowdown. He said last Saturday China's economy was still running ahead at a pace of well above 9 percent. He is satisfied with the control of CPI. The central bank forecasts 3 percent to 3.5 percent of CPI rise for 2005. He believes the situation is favorable to achieve this.

A few days ago Zhu Zhixin, Vice Minister of the National Development and Reform Commission expressed his confidence on a sustained, steady and fast growth of China's economy.

He argued that the slowdown logic based on declined CPI and fixed asset investment was not well grounded.

Source: People's Daily