ADB warns on China slowdown (07/29/2011)

Updated: 2011/7/29 10:27:00

EIJING - China´s growth faces downward risk in the coming months amid global economic uncertainties and fast-rising domestic inflation, the Asian Development Bank (ADB) said on Thursday.

However, there won´t be a "hard landing" for the world´s second-largest economy, because "policymakers have learned lessons from the 2008 financial crisis and they have the ability to avoid bad results", said Iwan Azis, head of the ADB´s Office of Regional Economic Integration.

The risk of the US sovereign rating being cut to AA from AAA is likely to increase borrowing costs and accelerate the depreciation of the dollar, meaning losses for China and other countries that hold US Treasury securities in their foreign exchange reserves, Azis said.

Other global economic uncertainties include an intensification of the debt crisis in some European countries, a slowdown of the US economic recovery and a slump in Japan following the March 11 earthquake and tsunami.

These factors could cut demand for products from China and some other export-led economies in Asia, the bank said.

China is expected to continue tightening monetary policy and reducing fiscal stimulus in the coming months, as inflation will remain a major economic risk, the ADB said.

The Manila-based bank forecast that China´s GDP growth rate is likely to decrease to 9.6 percent in 2011 from 10.3 percent last year. Growth could slow further to 9.2 percent in 2012.

In the second quarter of this year, GDP expanded 9.5 percent year-on-year, a decline from the 9.7 percent rate of the first quarter, according to the National Bureau of Statistics.

Meanwhile, the consumer price index (CPI) - a key gauge of inflation - surged 6.4 percent year-on-year in June, a three-year record.

Lu Zhengwei, chief economist with Industrial Bank Co Ltd, said that the August CPI figure might climb to 6.5 percent, and that might not be the year´s highest level, considering rapid rises in food and non-food prices.

"Although the economy shows signs of a slowdown, it is moderate, which means a hard landing is unlikely. Another rise in interest rates is affordable for China and the central bank might lift rates in August," Lu said.

The ADB also predicted that aggregate GDP growth for emerging East Asian economies - including China, South Korea, Vietnam, Malaysia and Indonesia - might slide to 7.9 percent this year from 9.3 percent in 2010. The rate was forecast at 7.7 percent in 2012.

The ADB suggested that emerging East Asia should accelerate regional policy cooperation and advance policy coordination to ensure more balanced and sustained growth.

Source:China Daily

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