Chinese economy to grow at 9.3% in 2011: World Bank

Showing signs of slowing down from a double-digit growth, the Chinese economy is poised to grow at the rate of 9.3 per cent this year, followed by 8.7 per cent next year, World Bank economists said on Wednesday.

China's economy is predicted to grow by 9.3 per cent this year, before slowing to 8.7 percent in 2012 and 8.8 per cent in 2013, said the World Bank forecast in its twice-yearly Global Economic Prospects report, which was released on Wednesday.

"What we're seeing now is a moderate slowdown," Ardo Hansson, lead World Bank economist in China, said.

"A moderation in high growth is something that could be welcome," he told state-run China Daily.

...

He said the across-the-board slowdown indicates that the policies the government has adopted are beginning to work.

Interest rates are still one percentage point below the level before the crisis and if inflation is taken into account, "We see a lot of room for further tightening," he said.

The government should use interest rates for more than administrative measures to handle economic growth in the long term, he said.

...

A recent index on factory output raised concerns over a possible hard landing for the economy.

The purchasing managers' index, a key gauge of manufacturing activity, hit a nine-month low of 52 in May.

Another index due to be released, the consumer price index (CPI), an indicator of inflation, was forecast to reach a 34 month-high of 5.5 per cent year-on-year for the same month.

...

To soak up liquidity and curb inflation, the central bank has raised interest rates four times since October and has also increased the reserve requirement ratio for banks eight times over the same period to a record 21 per cent for major lenders.

Hansson said the biggest risk facing the economy is not inflation, but the property market, which has been rising despite the government's cooling policies.

...

Hans Timmer, the director of development prospects at the World Bank, said decision-makers should focus more on signs that the economy is hitting its growth limits and indications of this are apparent not only in the inflation rate, but in the real estate market.

The economy "is cooling as we move into the second quarter, in response to policy tightening", Gerard Lyons, chief economist and group head of Global Research at Standard Chartered Bank, said in a research note.

"This is not a worry -- or certainly not a worry yet -- as policy tightening has been aimed at taming inflation and easing overheating pressures. The speed with which the recent tightening in monetary policy has fed through into the economy is remarkable," Lyons said.

...

"This transmission mechanism is faster than in the West.

Loan quotas appear to be the reason. It could have been that the economy was about to slow anyway, but more likely it was a series of different policy tightening measures, particularly the tightening of loan quotas and the messaging around this, as banks and firms responded," he added.

Ma Jun, chief economist at Deutsche Bank Greater China, said a hard landing is avoidable and that tight monetary policies will probably start to ease after the third quarter, once CPI growth hits the forecast peak of 6 per cent in June.

Click on NEXT for more...

Lu Zhiming, senior economist at the Bank of Communications, said there is no need for another hike in interest rates this year, given the signs of a slowdown.

Inflation is expected to fall in the second half of the year, he said.

He lowered his forecast for annual economic growth to 9.5 per cent from 10 per cent.