China's economy set to overtake France and the UK

China's economy will probably expand at more than four times the pace of Europe and Japan this year as Premier Wen Jiabao boosts consumer spending and encourages investment to ease transport bottlenecks.

The economy, on course to overtake France and Britain to become the world's fourth largest, will grow by 8.7 per cent after an estimated 9.4 per cent last year, according to the median forecast of 23 economists in a Bloomberg survey. The European Union and Japan expect growth of 1.9 per cent.

Wen said last month that China needs to maintain "rapid and stable" economic growth to raise the living standards of its 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 spending on cars and household goods.

"China and the US will continue to be the main engines of global growth [in 2006]," 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 per cent to global growth in 2004 according to IMF data, grew by an annual average 9.5 per cent over the past three years, driven by an investment boom that led to power shortages, transport bottlenecks and surging raw material prices.

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 in 2004, even as the rate of economic growth eases.

This year, China's economic growth will be the slowest since an 8.3 per cent 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.

China's trade surplus last year was on course to triple to a record $100 billion 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 this year and $61 billion next as import growth accelerates.

Investment will continue to drive growth as infrastructure spending increases and projects under construction are built out, Yao Jingyuan, chief economist at the National Bureau of Statistics said last month. He forecast fixed-asset investment would rise by about 20 per cent this year from about 27 per cent in 2005.

- BLOOMBERG