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Economy bottoms out: SIC

CHINA'S economy has managed to bottom out but the recovery hasn't strengthened sufficiently for people to rest easily, the State Information Center said yesterday.

The research unit under the National Development and Reform Commission, China's top economic planner, said the latest rebound was mainly based on the consumption of previous inventories and an easing in short-term demand.

"A solid base for recovery should be a new round of large-scale fixed-asset investment and an upgrade of equipment," the center said in a report. "But we have not seen these in the industrial sector."

The think tank said the country needed a stable policy to sustain development. However, it did not suggest more government spending in the second half.

"We should stick to carrying out the 4-trillion-yuan (US$586 billion) stimulus package for now, making it the key task in coming months to maximize its influence," the center said.

"Also, new areas having potential for growth need to be cultivated to boost the economy."

It estimated China's gross domestic product would expand 8 percent this year from last year, fulfilling the target set by the Chinese government at the beginning of this year.

The Consumer Price Index, the main gauge of inflation, may decrease 0.5 percent this year on an annual basis while the Producer Price Index, the factory-gate inflation measurement, may contract 5 percent this year, the center said.

Fixed-asset investment and retail sales, two sectors that help to cushion the country's economic slowdown amid the global financial crisis, are expected to gain 31 percent and 15 percent this year from a year earlier.

The growth of industrial production may accelerate in the second half and reach 8.5 percent this year, compared with a 6.3-percent rise in the first five months.

Exports and imports, the hardest-hit sectors in the crisis, may retreat 16 percent and 17.5 percent for the whole year and reduce the trade surplus to US$220 billion from last year's US$295.5 billion.

To strengthen the recovery, the think tank advised the country to allow private investment in the finance, railway, road, airline, telecommunications and power generation industries that were dominated by state-owned companies.

It suggested the country improve financial services for small and medium enterprises, which were keys to fuel growth in the wake of the crisis. The country could help them via tax reductions and provide them with subsidies and government sourcing.

China's economy grew 6.1 percent in the first quarter, the weakest in at least 17 years. The growth rate in the second quarter is due to be released next Thursday.


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