The economy, on course to overtake France and the U.K. to become the world's fourth largest, will grow by 8.7 percent in 2006 after an estimated 9.4 percent this year, according to the median forecast of 23 economists in a Bloomberg survey. The European Union and Japan expect growth of 1.9 percent next year.
Wen said on Dec. 1 that China needs to maintain "rapid and stable" economic growth to raise the living standards of the nation's 1.3 billion people, whose per capita income ranks 129th in the world, lower than Egypt and Iran. The government is cutting taxes and raising salaries to encourage more spending on cars and household appliances.
"China and the U.S. will continue to be the main engines of global growth next year'," said David Cohen, director of Asian economic forecasting at Action Economics in Singapore. "The slowdown in growth is minor and China's demand for oil and metals will continue to pressure global commodity markets."
China's economy, which contributed 13 percent to global growth in 2004 according to IMF data, grew by an annual average 9.5 percent over the past three years.
Commodities
Rising demand in the world's second-largest oil consumer and biggest user of copper and coal will help buoy commodity prices that reached record highs last year, even as the rate of economic growth eases.
"China is such a big user of commodities now because of its emergence as a manufacturing base and that's raising demand," said Tobin Gorey, commodities strategist at the Commonwealth Bank of Australia in Sydney. "We do expect to see prices stabilizing especially for commodities where supplies have increased. But the slowdown is really not material."
China's economic growth next year will be the slowest since an 8.3 percent gain in 2002. The weakening reflects a lower contribution to growth from trade and masks rising demand from domestic consumers and companies, said economists including Jonathan Anderson at UBS AG.
Electronics, Textiles
China's trade surplus is on course to triple to a record $100 billion this year on surging exports of electronics and textiles. UBS estimates net exports accounted for more than a quarter of economic growth in 2005, a contribution that may turn negative by 2007 as the trade surplus narrows. The bank estimates the gap will shrink to $92.8 billion in 2006 and $61 billion in 2007 as import growth accelerates.
"The real story next year will be a recovery in domestic demand," said Anderson, chief Asia economist at the investment bank in Hong Kong. "Retail sales are as strong as ever, imports are rising and although the government is cracking down on excess capacity in overheated sectors, it's also encouraging investment in a whole range of areas including transport and infrastructure."
Investment will continue to be the main driver of growth in 2006 as infrastructure spending increases and projects already under construction are built out, Yao Jingyuan, chief economist at the National Bureau of Statistics said on Dec. 22. He forecast fixed-asset investment will rise by about 20 percent next year from about 27 percent in 2005.
Tax Cuts
Raising domestic demand will be one of the key tasks for the government over the next five years, according to a blueprint for economic development issued by Chinese goverment in October. Farmers' taxes are being abolished, civil servant salaries are being raised and spending on education and healthcare is being increased.
A 2,600 year-old agricultural tax will be abolished from Jan. 1 following trials in some provinces in 2004, the Xinhua news agency reported today. The pilot projects saved farmers some 50 billion yuan ($6.2 billion) in taxes that year, the agency said.
Retail sales next year will increase by about 13 percent, matching the pace of growth in 2005 and 2004, according to Yao from the statistics bureau.
"The consumer has been spending a lot -- car sales are recovering and tourism numbers are off the charts," said UBS's Anderson.
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