China think-tank sees strong growth, no hard landing

BEIJING(Reuters) : China’s economy is expected to grow a robust 9.5 percent in the first half of 2011 and retain much of the momentum the rest of the year with little chance of a hard landing, a government think-tank said in a report published on Thursday.

The State Information Centre (SIC), in the research report published in the official China Securities Journal, forecast that annual inflation would be 5.3 percent in the first half and 4.9 percent for the whole of 2011, overshooting Beijing’s target of capping full-year inflation at 4 percent.

The think-tank, which is under the powerful National Development and Reform Commission, said inflation was set to hit a new high in June, but did not give a specific forecast.

China’s annual inflation rose to a nearly three-year high of 5.5 percent in May and is expected to hit 6 percent in June. China’s current one-year bank deposit rate is 3.25 percent.

The government “should put greater emphasis on price tools such as interest rates and exchange rates as a way to gradually lift real interest rates out of negative territory,” the report said.

Separately, the China Securities Journal said in an editorial that the yuan would continue to rise in the second half of 2011 thanks to China’s relatively strong economic growth and “twin surplus” in both the current and capital accounts.

The SIC predicted that the pace of growth of the world’s second-largest economy would ease slightly in the second half compared with the first half, making whole-year growth 9.3 percent.

“As long as the world economy can avoid another recession, the possibility of a hard landing for China’s economy is extremely small,” it said.

Fixed asset investment, the key driving force of economic growth in China, could grow at a rapid pace in the next six months, underpinned by investment projects such as the mass construction of affordable homes for the poor, the think-tank said.

But a tighter policy and a continuing energy efficiency drive could weigh on industrial output, which is forecast to rise 13.5 percent for the whole of 2011, easing from an estimated 13.9 percent expansion in the first half, the SIC said.

Growth in exports is also likely to slow in the second half, the think-tank said, as the yuan appreciates gradually, labour costs climb and the cost of financing rises.

The SIC expects China’s exports to grow 24.8 percent in the first half of this year and expand about 21 percent for all of 2011.