China Economy to Remain Moderately Strong: ADB

Related: ADB Reduces Asian Growth Forecast, Warns Inflation Threats

China's economy will grow moderately after breakneck expansion in the past few years, but it still remains in the rank of the world's fastest growing economies for the rest of the year and the next year, a key Asian Development Bank (ADB) report said.

The report, made public on Tuesday by the Manila-based multilateral lender, projected China's growth to fall to 10 percent this year and further ease to 9.5 percent in 2009.

The cool-down is a result of the combining effects of a reduced trade surplus, slower growth in investment, and the global economic downturn, the Asian Development Outlook 2008 Update said.

China's GDP (Gross Domestic Product) grew 11.4 percent year-on- year with the risks of spiraling inflation and economic overheating rising. For the first half of 2008, the economy grew at a reduced pace of 10.4 percent.

"Weaker external demand and the impact of monetary policy tightening trimmed economic expansion to a still-rapid 10.4 percent in the first half of this year," said ADB chief economist Ifzal Ali.

Ali said a growth rate of 9.5 percent in 2009 would bring the economy back to its long-run sustainable growth range of 9-10 percent, easing the strains on energy, inflation, and the environment.

The report said growth in imports had outpaced that of exports, cutting the trade surplus by 11 percent in the first half as slower demand from industrial countries affected exports, and high commodity prices also inflated the cost of imports.

Fixed investment growth in real terms dropped around 15 percent in the first 6 months of 2008, down from the robust 22 percent in 2007 due to rising prices for fuel, power, and raw materials; reduced growth in industrial profits; a slowdown in the property market owing to a tightening of credit and government directives to reduce fixed investment in certain heavy industrial fields.

ADB said it has also revised the inflation projection for the whole year of 2008 from 5.5 percent to 7 percent on the back of high food prices.

For 2009, the inflation is likely to hit 5.5 percent, instead of 5.0 percent projected in April. Price increases for fuel and electricity are anticipated, which will lead to higher production costs that may be passed onto consumers, the report said.

The report said the "main risks to the outlook" would be a sharper than expected deceleration in exports and double-digit inflation that would require aggressive monetary policy tightening in the coming months.