Date of publication: 29-03-2013
China's economic growth will rebound something about the next quarter driven by global demand and accommodative policy recover, but concerns about rising inflation can result in tightening of the measures, the experts said.
The economy was forecast to expand 8.2 percent in the second quarter, up from an estimated 8 percent in the first quarter, according to a quarterly report published yesterday by the Bank of China.
The prediction was supported by the rising profits of large industrial enterprises, which rose by 17.2 percent year-on-year to 709.2 billion yuan (US $ 114.1 billion) in the first two months, mainly due to the power, oil refining and steel sectors, according to the Chinese National Bureau of statistics.
"The economic rebound lacked momentum in the first quarter because of slowing consumption and investment, but the stabilisation of these two will boost growth in the second quarter," said the bank report.
In addition, export grew "unexpected", and there was a significant increase in the trade surplus in the first two months, which was 44.4 billion dollars compared with a deficit of 4.9 billion dollars last year.
However, such growth trends is lacking sustainable economic recovery amid unstable global momentum, the report said.
The report also predicted that the consumer price Index, a major gauge of inflation, of 0.5 percentage point to an average of 3.2 percent in the second quarter from the previous quarter, would pick up as a result of rising food prices and resource price reform.
The pressure also comes from imported inflation due to the quantitative easing widely adopted by Governments worldwide, generated excessive global liquidity and driven up prices of raw materials.
"Given these factors, we predict a neutral macro-economic policy to strive for a balance between growth and guard against inflation to stabilize," said Wen Bin, a senior researcher with Bank of China Institute of international finance.
"Interest rates remain unchanged all year, and there will be no room for further reductions in the bank Reserve ratio requirement in the first half of this year," he said.
But David Leung, General Manager of asset management and priority and international banking, consumer banking at Standard Chartered Bank (China) Ltd, said that the monetary authorities the interest rate by 25 basis points in the fourth quarter, probably would raise than walking rates again by 50 points in the first quarter of next year, increasing inflation pressure.
Leung said that China could maintain GDP growth of 8.3 percent during the whole year, with an inflation rate of less than 4 percent controlled.
The Asian economy would be driven by China's economic recovery, before strengthening in the light of the improvements in the u.s. economy, he said.
Continuous monetary easing would inject further liquidity and worldwide support of the global market, particularly the capital markets, he said.
"That's why more hikes in interest rates would be seen as signals of an even stronger rebound, which would boost corporate credit ratings and further shore up the stock market."
But some analysts are not as optimistic.
Yao Wei, a Chinese economist at Societe Generale CIB, said: "the growth of loans in the banking system will be damaged by the tightening of the real estate industry, and growth of the non-bank lending will be cool as a result of tighter regulation of shadow banking activities."
This will lead to tighter liquidity conditions and slower economic growth later in the year, she said.
The report of the Bank of China also estimated that the exchange rate of the renminbi further, mainly as a result of the strong demand for the currency amid an influx of hot money would increase.
"The exchange rate of the renminbi will climb steadily and more elastic. It is expected to appreciate by about 3% against the dollar by the end of 2013 and 6.18 6.1 by the end of the second quarter, "said Wen.
He also added that there is room for more expansion of the renminbi daily trading band against the US dollar set by the central bank, which is currently 1 percent.
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