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China's GDP estimated to grow by over 8.5% in 2010

China's GDP estimated to grow by over 8.5% in 2010

14-Jun-10
In China, Q1-2010 gross domestic product (GDP) rose by 11.9% while retail sales rose 18% from a year earlier in March and factory output similarly rose 18.1%. Inflation in March softened to a rate of 2.4%, soothing fears the world's third-largest economy is on the brink of overheating. China is under pressure to revalue the yuan after economic growth soared in Q1 at the fastest annual growth rate since 2007. China had pegged the yuan at about 6.83 to the dollar about two years ago to help its exporters weather the global financial crisis, stressed that the latest growth figures were distorted and that significant risks remained. As per the National Bureau of Statistics, though the first-quarter figures are very strong, they have been largely driven by stimulus policies and a low base effect at the start of 2009, when China was still suffering from the global financial crisis. The country expects to face a challenge towards the latter part of the year, because the base figure will be higher. Global economic recovery is slow and yet to achieve balance amid higher commodity prices and sovereign debt worries in some countries. China is now widely predicted to overtake Japan in 2010 to be the world's second-largest economy- hence several economists suggest the Yuan be allowed to rise or other measures used to keep price pressures in check. Any revaluation of the Yuan could have dual effect on the world's exporters. While it may help them compete with China more easily and provide potential Chinese trade partners with greater buying power, analysts predict that it is also likely to raise already high raw material and fuel costs.
China has little chance of incurring severe inflation in 2010 and CPI will grow about 3% year-on-year, as GDP growth is forecast at 9.5%, as per a report from China Construction Bank. Investment, the major momentum for China's economic growth, is expected to expand at a slower pace of 26% year-on-year, 4 percentage points lower than the previous year. In order to keep the steady growth of social consumption, the government may issue new stimulus measures in 2010. The total retail volume of social consumer goods is predicted to grow 18% in 2010 from the previous year. China's real estate sector will face tighter adjustment and control from the government, slowing sales and stabilizing housing prices in 2010, according to the report.
China's gross domestic product would exceed 11% in 2010 before slowing to just fewer than 10% in 2011, Paris-based OECD has predicted. The organization forecast China�s speedy growth to continue in early 2010 and attributed the smaller growth rate in 2011 to a phasing out of the stimulus package. Deteriorating trade and still-strong domestic demand would cut current account surplus sharply in 2010, while the inflationary pressure was likely to remain subdued with mitigation in food prices. It confirmed that the Chinese government's policies had brought significant growth in the housing market, transport construction and non-government investment. Higher food and commodity prices had lifted inflation to a high level in the year to April but the OECD expected a moderate rise of 2.5% in the consumer price index over the whole year and little movement in 2011. China�s fiscal policy was becoming more neutral and restraints on credit had been introduced. Although governmental fiscal stimulus was set to diminish further and domestic demand was likely to ease in the following quarters, investment in the private sector would remain strong and domestic demand was sufficient to boost economic growth, thus the OECD was confident of continued strong growth for 2010 and 2011. However, it also warned that overheating had recently started to become more of a risk, and suggested the government take measures to cool the property market as well as allow a gradual appreciation of the Chinese Yuan against a basket of currencies.
 
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