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Optimism grows that China's on upturn path

THE outlook was mostly optimistic yesterday as China's central bank said the country has been on the path to recovery since the first quarter and Goldman Sachs joined a string of investment banks in upgrading forecasts for national economic growth.

But not all experts were singing the same positive tune. A prominent state economist cautioned that a recovery won't solidify in the short term due to weak external demand and obsolete production facilities that might take years to phase out.

The more encouraging words came from Yi Gang, vice governor of the People's Bank of China, who told a forum in Beijing that the recovery would speed up over the next few quarters and that growth for this year would be close to the government target of 8 percent given the positive response to the state's 4 trillion yuan (US$586 billion) stimulus package.

"In terms of quarter-on-quarter data, the fourth quarter of last year was the bottom of this cycle in terms of industrial output, electricity use, transportation and so on," Yi said at the annual meeting of the International Swaps and Derivatives Association.

Yi said the surge in lending helped dissipate deflationary pressure and stabilize China's property and equity markets.

China's gross domestic product rose 6.1 percent in the first quarter from a year ago, the slowest pace in a decade. But Premier Wen Jiabao said the economy performed "better than expected," citing gains in investment, consumption and industrial output, as well as ample banking liquidity.

In a report yesterday, Goldman Sachs Group Inc increased its forecast for China's GDP growth from 6 percent to 8.3 percent for this year, and from 9 percent to 10.9 percent for next year.

"We have raised our real GDP growth forecasts for 2009 and 2010 given that the policy stimulus has been more aggressive and the domestic demand response has been stronger and has occurred earlier than we originally forecast," the report said.

UBS Securities Co upgraded its GDP growth forecast from 6.5 percent to 7-7.5 percent for this year on the strong stimulus-related bank lending expansion.

"We expect that the explosive growth in bank lending since late 2008 will lead to a surge in government-mandated investment in the coming months. The main downside risk to our outlook is a further decline in external demand," UBS said in a report.

Morgan Stanley said China's GDP growth this year is very likely to exceed its estimation of 5.5 percent backed by the better-than-expected performance in the first quarter.

But Fan Jianping, chief economist at the State Information Center, was more cautious. He said the nation's economy is not yet on track to a stable recovery as the impact of the global financial crisis is still spreading and exerting an even deeper effect on China.

"Only by boosting domestic demand on the one hand and cutting obsolete capacity on the other can we gradually bring about a better balance between supply and demand," Fan said in a report.


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