By intern reporter Yu Hairong

(Caijing.com.cn) The China Center for Economic Research at Peking University projects gross domestic product accelerating to 7 percent in the second quarter from 6.1 percent in the three months to March, driven by stronger domestic consumption.

The Lang Run Forecast averages projections from 20 institutions including CCER, Morgan Stanley, Merrill Lynch, China International Capital Corp., Citigroup, HSBC and UBS Securities.

The April 25 report projected the consumer price index to continue its decline, to 1.1 percent year-on-year in the second quarter, with exports and imports falling by 17 percent and 22.5 percent, respectively.

Professor Lu Feng of CCER said the consensus among the financial institutions is that domestic consumption will drive the rebound in GDP.

Liang Hong, director of the capital market department at China International Capital Corp., the state-owned investment bank, pointed to surging first quarter M2 and lending figures, together with acceleration in the auto and housing sectors in the past four months, as indicators of a recovery.

During the first quarter, M2 growth reached 25.5 percent, and banks extended a record 4.6 trillion yuan in new loans. March real estate sales returned to the levels of August 2007.

Liang said the Chinese economy hit bottom in mid-December and is now coming back up in a steep, V-shaped path.

“The basic consensus is that the economy will recover in the second half of the year, whether with a W-shaped or V-shaped rebound,” said Professor Song Guoqing from CCER.

Given that exports have already fallen by nearly a third, their drop should narrow or even reverse in the coming months, Song said.

But Wang Zhihao, an analyst with Standard Chartered Bank (China), said China’s economy is only slowly recovering, citing the bank’s own Chinese industrial activity index, which last year fell to its lowest since 1994. The index saw a slight rebound in recent months but remains low.

Wang projects this year’s actual investment to be half of last year’s, with most projects coming from the government. Private investment will shrink to 1998 to 1999 levels, Wang said.

But strong retail sales might be able to overcome falling export demand and weak private investments, Wang added. First quarter retail sales rose by 15 percent year-on-year, by volume.

On February 16, the Lang Run Forecast projected first quarter GDP to grow 6.6 percent and CPI to fall by 0.7 percent. Exports were predicted to decline by 7.7 percent and imports to fall by 22.6 percent.