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UBS Predicts 8.5% GDP Growth for China

09-21 17:17 Caijing

Some analysts doubt that China's investment-driven growth model is sustainable in the absence of a rise in consumer demand.


By staff reporter Wang Jing

(Caijing.com.cn) China's gross domestic product will expand 8.5 percent year-on-year in 2010, Wang Tao, chief China economist of UBS Securities, said in a Sept. 18 report.

Real estate investment will continue to propel the recovery of the world's third-largest economy in 2010, Wang said, adding consumption will pick up due to an improved employment situation and accelerated income growth.
 
Investment in real estate rose 9.9 percent year-on-year in the first half to 1.5 trillion yuan, accounting for about one-fifth of fixed-asset investment in the period. 

China's exports will also improve as the world economy will see a modest recovery next year, according to the report. China's exports fell for a 10th straight month in August, down 23.4 percent year-on-year, according to the National Bureau of Statistics. 

UBS forecast China's GDP to grow nearly 9 percent in the third quarter and about 10 percent in the fourth quarter, and earlier said China would grow 8.2 percent year-on-year in 2009. China's GDP grew 7.1 percent year-on-year in the first half, compared with a government target for the full-year of 8 percent.

China will not tighten fiscal policy in 2010, the report said, in keeping with Premier Wen Jiabao's Sept. 10 comment that the government will press on with its "proactive" policies as the economic rebound remains "unstable, unbalanced and not yet solid."

China Europe International Business School professor Xu Xiaonian reiterated Wen's warning Sept. 21, saying unsustainable bank lending in the first half will only temporarily stall the decline in economic growth. 

Xu said the government's 4-trillion-yuan stimulus package, backed by more than 7 trillion yuan in new lending in the first six months, relies too heavily on investment to drive the recovery, further exacerbating structural imbalances in the economy by adding to existing overcapacity problems.  

In an August interview with China Daily, J.P. Morgan Securities China chairman Jing Ulrich said gross capital formation, which includes components of FAI, contributed 6.2 percentage points to the 7.1 percent growth achieved in the first half. 

Analysts have cast doubt on the sustainability of the investment-driven mode in the absence of an increase in consumer demand.

China reported retails sales increased 15 percent year-on-year in the first half, but there has been little evidence of such booming growth on the shop floor. Many of the country's leading retailers, including Gome Electrical Appliances Ltd. (HKG:0493 ) and Sunning Appliance Co. (SHE:002024), posted disappointing results for the period.

While auto sales topped 1 million units for the five consecutive months to July, much of the demand has been driven by government subsidies, with analysts forecasting sales will dry up just as quickly as they appeared if the incentives are withdrawn.

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Full article in Chinese: http://www.caijing.com.cn/2009-09-21/110256437.html

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