SHANGHAI, July 9 — China will expand about 8 per cent this year, a leading think-tank said today, the latest in a series of broadly bullish reports reflecting the growing momentum of the world's third-largest economy.
The State Information Centre, which reports to the National Development and Reform Commission, China's top economic planning agency, said it was premature to declare victory after a deep downturn triggered by a collapse in global demand.
"The Chinese economy has successfully touched bottom and has started to rebound, but this does not mean a recovery trend is assured," the research outfit said in a report carried in the official China Securities Journal.
But the centre pointedly said the economy did not need further stimulus on top of the government's 4 trillion yuan (RM2 trillion) spending plan or the help of lower borrowing costs.
"In a view of preventing inflation in the long-term and controlling inflationary risks, there should be no interest rate cuts this year," the SIC said.
The International Monetary Fund yesterday became the latest organisation to take a rosier view of China's prospects, raising its forecasts for GDP growth this year and next by 1 percentage point to 7.5 per cent and 8.5 per cent, respectively.
The World Bank, the Organisation for Economic Co-operation and Development and a clutch of banks have recently upgraded their forecasts as evidence mounts that massive fiscal and monetary stimulus is likely to lead to full-year growth close to the government's 8 per cent target.
Indeed, the official Xinhua news agency cited unidentified statistics officials as saying gross domestic product growth was already "close to 8 per cent" in the second quarter.
The figures are due on July 16. A Reuters poll points to growth of 7.5 per cent from a year earlier.
Xinhua said the data would clearly show that the economy was no longer declining but was now moving up.
Many export-reliant economies in Asia are banking on a rebound in China to help offset still feeble consumer demand in major, recession-hit Western markets.
While debate swirls in the United States about the merits of a second round of fiscal pump-priming, market talk in China has abruptly switched to whether the central bank will soon need to abandon the easy monetary stance it adopted late last year.
Banks extended 1.53 trillion yuan in new loans in June, the PBOC said yesterday, taking new credit for the first half of the year to 7.37 trillion yuan, or almost 25 per cent of last year's gross domestic product.
The record pace of lending is fanning worries among academics and regulators that bank credit is inflating new stock and property bubbles and could sow the seeds of a new crop of bad loans in the predominantly state-owned banking system.
"Continued signs of economic improvement have raised market interest rates and heightened expectations for a turn in monetary policy. June's data releases in the coming two weeks will likely further increase these concerns," said Ken Peng, an economist with Citigroup Global Markets in Beijing.
The People's Bank of China started to nudge up money market rates last week, and yesterday said it would resume sales of 12-month bills, suspended since mid-November, to drain cash from the banking system.
"The authorities are increasingly showing intent to rein in liquidity growth," Peng said in a report. "Turning to a more neutral monetary policy is appropriate at this time."
Still, given Beijing's political imperative of maximising growth, economists say it is premature to expect the PBOC to start tightening aggressively.
A Reuters poll released on Tuesday showed economists were unanimous in expecting no change in borrowing costs or banks' required reserves through the first half of 2010.
"We think the move is more likely to be the PBOC moving from an extremely loose monetary policy stance to a still accommodative level, rather than a significant shift to a growth-suppressing position," Helen Qiao and Yu Song with Goldman Sachs said in a note to clients.
Lu Lei, the chief economist of United Securities, said in an opinion piece in the China Securities Journal that the central bank would not raise interest rates as long as consumer price inflation was below 2 per cent.
Prices have in fact been falling for several months, and the State Information Centre said it expected the consumer price index to drop about 0.5 per cent this year and the producer price index by about 5 per cent.
The think-tank forecast a full-year trade surplus of US$220 billion (RM770 billion), down from US$295.5 billion in 2008, based on declines of 17.5 per cent in exports and 16 per cent in imports. — Reuters
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