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Indicators bode well for GDP

By Lillian Liu (China Daily)
Updated: 2009-01-07 11:54

Despite its growth rate slowing by a third, the Chinese economy has the potential to grow by 8 percent this year, as the manufacturing sector recovers and energy consumption showed signs of increasing late last year, according to economists with investment bank Credit Suisse.

"We saw a sudden collapse in investor confidence in China, especially in the fourth quarter of last year, but we recognize that the Chinese economy could reach the turning point," said Dong Tao, chief regional economist, Credit Suisse. He cited the central government's stimulus measures as key support for economic recovery.

Goldman Sachs, however, doesn't share this optimism. The company revised the 2009 growth outlook for China from 7.5 to 6 percent, citing domestic problems such as the tightened credit policy for property developers.

The purchasing managers index, an in

Special Coverage: Coping with Financial Crisis Related readings:  Central bank warns of tough economic challenges  Growth of fiscal income to slow down  China's economic powerhouse Guangdong told to tighten belt  Additional stimulus in the pipeline

dicator of the economic health of the manufacturing sector, rebounded to 41.2 in December from a record low of 38.8 in November.

The power consumption and trade finance conditions also seem to have improved last month, Tao told reporters at a press conference in Hong Kong yesterday.

He said that Beijing has launched many effective measures, and the next round of stimulus measures, which may be announced by the Chinese lunar New Year, could include raising the ceiling on tax-free income to boost consumption.

"We think the government will attempt to bolster rural consumption by increasing minimum grain procurement prices," said Jing Ulrich, managing director and chairwoman of China equities at JP Morgan Chase.

In China, macroeconomic policy has now fully shifted to stimulating the economy and maintaining the GDP growth at around 8 percent, Ulrich said at a 2009-outlook press conference last month. A growth of less than 8 percent, she added, raises the risk of unemployment significantly.

Credit Suisse predicts the economy will remain gloomy in the first half of this year, with GDP growth reaching 7.1 and 7.6 percent in the first and second quarters, respectively.

But that growth is expected to hit 8.3 percent in the third quarter and 8.6 percent in the fourth, the firm forecasts.

But economists at Goldman Sachs suggest that the slowdown will be greater than during the Asian financial crisis or the 2001 dotcom bust.