The government remains especially intolerant of political protest, as illustrated by its response to a recent small-scale incident in Tibet, which is reported to have prompted many arrests.
International Relations. China's co-operation with its neighbors to the North and West is strengthening. The most recent illustration of this came in August, when the Shanghai Co-operation Organisation (SCO), a group consisting of China, Russia, Kazakhstan, the Kyrgyz Republic, Tajikistan and Uzbekistan, held joint military exercises for the first time. Over the outlook period, co-operation among SCO members will continue to develop. Joint military exercises held under the auspices of the Shanghai Co-operation Organization (SCO) in August prompted some observers to comment that the group could come to rival the North Atlantic Treaty Organization (NATO) as a military alliance.
Tibet Outfalls. The claim to sovereignty over Tibet has implications for China's complicated relations with neighboring India. China maintains a claim to the entire Indian state of Arunachal Pradesh, an area of 90,000 sq km running between Bhutan and Myanmar. The state includes a large area around the Tawang monastery that was previously under Tibetan control, but China's claims have broadened out to encompass the entire state, possibly as a method of forcing territorial compromises from India in the disputed Aksai Chin area of the western border near Kashmir. Although India has been careful not to overreact to Chinas more assertive pushing of its claim to Arunachal Pradesh, border issues between the two countries remain far from resolution.
Economic Policy Outlook. In August, the government unveiled a scheme that would allow individual investors to invest in equity securities in Hong Kong. This move marks a further step towards liberalization of the capital account. Fiscal revenue growth outpaced expenditure growth in the first half of 2007. Monetary policy continues to be tightened, with increases in interest rates and bank reserve requirement ratios and a reduction in the tax on deposit interest earnings.
Real year-on-year GDP growth reached 11.5% in the first half of 2007, up from 11.1% in 2006 as a whole. Soaring agricultural prices, notably for pork, forced consumer price inflation to a ten-year high in July. China's foreign-exchange reserves grew to US$1.3trn by end-June, an increase of 41.4% on the same month in 2006. The government has begun investing China's massive foreign exchange reserves in companies abroad.
The stock market continues to rise despite a rise in stamp duty on share transactions. Reforms to the export tax rebate regime in the first half of 2007 boosted export growth, contributing to a massive surplus of US$155.6bn in January-July.
Economic forecast. The underlying objective of economic policy remains the need to achieve strong rates of growth in order to create jobs and reduce the unrest associated with the massive changes that society is undergoing. The government will also seek to upgrade the quality of economic growth, promoting more research and