War not expected to hamper growth

ECONOMISTS said on Thursday the war in Iraq would have some negative impact on China's economy, but would not dampen the growing economic momentum of the country. 

“Although the Chinese economy is unable to escape the negative impact of US-led Iraq war, it will probably continue its rapid growth of the past decade,'' said Huang Yiping, a researcher with Salomon Smith Barney, a member of Citigroup. 

He attributed China's capability to sustain rapid growth in a volatile world to its relatively closed economy. 

“It is still likely that it will outperform all of its neighbours,'' said Huang. 

China's US$300bil (RM1.14tril) in foreign reserves shield it from a possible overseas financial crisis, he added. 

But uncertainties still remain depending on how long the war will be, he said. 

If a protracted war in Iraq that pushes oil prices above US$80 (RM304) a barrel, 2 percentage points will be chopped off Asia's economic growth this year, he said. 

Zeng Zhugen, an economist from the Economic Research Institute under the State Development and Reform Commission, agreed with Huang, saying the Iraq war would only affect China's economy for a short time. 

“According to our study, the oil price hike will eat into China's economic growth by no more than 0.3 percentage points.'' Zeng said. 

Despite importing about one-third of its oil, China's economy is still largely powered by cheap and plentiful domestic coal, he added. 

Zhang Qi, an analyst from Haitong Securities, said the impact from the war on domestic stock markets would be more psychological than actual. 

But the uncertainties hang over China's export prospects, although this may not have an influence on the flow of foreign investment into China, which is seen as a safe haven. 

However, manufacturers will be dealt a major blow if the war causes a global stagnation or recession, cutting demand for Chinese-made products, Zeng said. 

“Even if the war is finished in a short time, foreign trade could be severely affected if the United States, as China's biggest export market, cannot stimulate its economy as it expects but is dragged further into the economic doldrums by the war,'' he added. – China Daily  

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