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China may be on course for economic slowdown in 2004

Standard & Poor's Ratings Services said today that mainland China's industrial sector is likely to maintain a high rate of earnings growth in the second half of the year, but the momentum could slow in 2004 as commodity prices stabilize and inward investment cools down, according to a report on major corporations in China released today by Standard & Poor's.

Based on publicly available information, the report reviews the financial trends of the country's top 50 companies.

Massive inflows of overseas investment since mainland China joined the World Trade Organization (WTO) at the end of 2001, together with expansive government policies and rising oil and steel prices, have generated significant growth in corporate earnings in recent years.

Such rapid growth, however, is unlikely to prove sustainable. "This should not be a surprise after the exceptionally strong growth in earnings in recent years," says Standard & Poor's director John Bailey. "The proactive fiscal policies should remain in place and industrial restructuring is likely to

continue to stimulate demand, but we expect earning's growth to moderate in 2004 as product prices stabilize." Mr. Bailey also said that foreign direct investment in the country had tapered off somewhat over recent months, while the government is tightening controls on investment growth in over-heated industries such as real estate and the auto sector.

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