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August 22, 2009

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Think tank says China GDP to rise 8.5% in Q3

CHINA'S gross domestic product will grow about 8.5 percent in the third quarter from a year earlier, picking up from the second quarter's 7.9 percent pace, a government think tank said yesterday.

The bullish forecast comes against a background of anxiety in world markets that Chinese growth might falter as a boom in fiscal spending and bank lending ebbs.

The State Information Center said growth in bank credit would "normalize" in coming months but warned that any abrupt slowdown in lending would leave many state-backed projects unfinished and result in a new crop of non-performing loans.

New lending will rebound to about 500 billion yuan (US$73 billion) in August after shrinking to 356 billion yuan in July, the China Securities Journal reported.

The People's Bank of China mentioned in a report earlier this month that the central bank was considering fine-tuning monetary policy to avoid possible risks hidden in the huge amount of new yuan loans issued this year.

It later clarified its position by saying that it would not set quotas on new loans to rein in liquidity and any fine-tuning would be consistent with its current policy stance.

China's banks granted a record 7.73 trillion yuan in loans in the first seven months, a jump of 173 percent from a year ago and surpassing the 5 trillion yuan target for this year.

In a report carried in the same paper, the think tank re-emphasized yesterday that China would maintain its "proactive" fiscal policy and "appropriately loose" monetary stance in the second half of the year.

"China's CPI has been falling for many months, and it's a fact that mild deflation exists, so there is no basis for China to alter its monetary policy," the think tank, which comes under China's economic planning agency, said.

It forecast that the Consumer Price Index would fall 1.3 percent this quarter from a year earlier and the producer price index would decline 7.9 percent due to the high comparison base in 2008.

The think tank said the Chinese economy has bottomed out but is still growing below potential, mainly due to weak exports.

Trade decline

Exports would fall 20 percent in the third quarter, compared with a year earlier, with imports dropping 12.7 percent, the think tank forecast.

Capital spending would remain a key driver for the world's third-largest economy, and urban fixed-asset investment was likely to rise 32 percent in the third quarter, it said.

Strong investment is worsening many deeply rooted problems, including over-capacity, the report said. It listed steel and cement as sectors with serious over-capacity.


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