Economists said yesterday the war in Iraq would have some negative impact on China's economy, but will not dampen the growing economic momentum of the country.
"Although the Chinese economy is unable to escape the negative impact of the 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, improved competitiveness and its accession to the World Trade Organization.
"It is still likely that it will outperform all of its neighbors," said Huang.
China's US$300 billion in foreign reserves -- more than five times its short-term foreign debt -- 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 pushes oil prices above US$80 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 will 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 said.
But the outbreak of war will not reduce the uncertainties hanging 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.
But 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 expected, but is dragged further into the economic doldrums by the war."
Wang Jian, an economist from the Institute of Macroeconomy under the State Development and Reform Commission, said international investors were likely to transfer more of their money to safe investment destinations, such as China.
As the Iraq situation may have a bigger impact over a relatively longer period than most people expect, China looks like a safer option, he said.
China's airlines are expected to experience a minimum negative financial impact from the war.
Air China has suspended its only flight to Kuwait due to rising tensions in the Persian Gulf.
Since the airlines rely heavily on domestic flights for revenue, instead of international flights, the domestic aviation sector is unlikely to be affected by the crisis in the Gulf, said Zhang Qi, an analyst with Haitong Securities Co Ltd.
The bigger problem for Air China, and all other airlines, in the event of a war in the Middle East, would be rising fuel costs, he added.
Prices of plastics and fibers, the by-products of oil, have kept surging in the last two months, which increases the cost of related industries such as textiles and light industries.
According to the China Fiber Industry Association, the average fiber price increased by 30-40 percent in March year-on-year.
Cai Xiyi, president of Taiwan Liushang Industrial Company, which sells shoe accessories, said he has received fewer orders in March, which should be a peak season for the business.
Many people are waiting to see what happens, he said.
Sun Huaibing, an analyst from the China Textile Industry, said the material cost surge will cast a shadow on China's textile industry, which is the major driver of China's foreign trade.
Plastic prices have jumped by 100 yuan (US$12.09) per ton to reach 6,900 yuan (US$834) since February.
(China Daily March 21, 2003)
