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ADB hikes China GDP forecast (04/14/2010)

Updated: 2010/4/14 10:32:00

Bank raises growth figure for 2010 to 9.6% from 8.9%

BEIJING - The Asian Development Bank (ADB) on Tuesday lifted its forecast for China´s 2010 gross domestic product (GDP) growth, but said the figures may cool slightly in 2011 due to monetary tightening measures.

The bank lifted its 2010 GDP growth forecast to 9.6 percent, compared with 8.9 percent made in September 2009. For 2011, the ADB expects GDP growth to be slightly lower at 9.1 percent.

The ADB said it expects fixed asset investment growth to ease slightly to 25 percent in 2010, compared with 30 percent last year. Signaling that GDP growth would be strong in the first half of 2010, the bank said the shortfall in investments would be offset by larger contributions from consumption and net exports.

At the same time the organization cautioned that the strong growth comes with inflation and asset bubble risks.

"As the recovery becomes stronger, authorities need to keep tabs on the rising commodity and asset prices, and resort to regulatory intervention when required," said Jong-Wha Lee, chief economist of ADB.

Inflation is expected to go up, while the consumer price index (CPI) may average 3.6 percent in 2010 and 3.2 percent in 2011. The key gauge had declined in 2009 on the back of lower oil prices, a bumper harvest and manufacturing overcapacity, the bank said in its Asian Development Outlook 2010.

Signs of rising inflation, higher asset prices and increased foreign capital flows will prompt the government to adopt a more cautious approach by curbing lending for public investments, said the report.

At the same time the bank also sees downside risks to its growth forecasts in the weaker than expected global recovery and an intensification of trade-related disputes.

Zhuang Jian, a senior economist with the ADB, said the government might have to consider more monetary policy moves.

"We see the momentum of economic growth becoming much stronger If GDP growth in the first quarter is in double-digits, it might be proof of overheating and the government should adopt a more prudent monetary policy," he said.

Economic data for the first quarter of this year will be released by the National Bureau of Statistics on Thursday.

The ADB said the sharp rise in property prices need to be cooled, lest it develops into asset bubbles.

Housing prices in 70 major cities rose by 1.5 percent year-on-year in 2009, according to official data. But many feel prices have risen much higher and are at unaffordable levels.

The government recently raised taxes on sales of second-hand homes and tightened land transfer rules, to rein in realty prices.

"The government is really concerned about property prices rising too rapidly," said Wang Tao, head of China economic research at UBS Securities.

Source: China Daily

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