Economy

China GDP set to grow 9.5% this year

By Wang Bo (China Daily)
Updated: 2010-05-07 09:42

BEIJING - The Chinese economy will grow by 9.5 percent this year, helping it overtake Japan as the world's second-largest economy, but the risk of an asset bubble remains a serious challenge for the country, a report from a United Nations agency said on Thursday.

The report also warned Asian countries of the risks brought by short-term capital inflows, which was echoed by a leading Chinese foreign exchange official, who vowed to beef up monitoring of cross-border capital inflow to ward off potential asset bubbles.

In the latest economic and social survey launched by the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) on Thursday, it increased its forecast for China's gross domestic product (GDP) growth to 9.5 percent from the 8.8 percent the United Nations predicted in December last year.

"China is expected to continue to lead the growth of the Asia-Pacific region, with investment in infrastructure helping to remove supply-size constraints and spur even faster growth beyond 2010," said Aynul Hasan, chief of development policy section of UNESCAP's macroeconomic policy and development division.

The report predicted China would surpass Japan to become the world's second-largest economy this year. "It is a fact, given China's current economic size and growing pace, and it will not be far away, probably in the next 10 to 15 years, that the country grows into the largest economy," Hasan said.

Despite the rosy growth prospects, the report said rising inflationary pressure, especially in food products, and asset price bubbles, makes 2010 a complex year for policymakers who will have to balance sustaining growth momentum with financial stability.

"Chinese policymakers are facing the dilemma of draining excessive liquidity and maintaining economic growth and employment, so inflationary pressure and asset bubble risks will be quite challenging this year," said Huang Yiping, a professor of economics at Peking University.

The government has set an overall lending target of 7.5 trillion yuan this year, about 1.5 times the annual amount given out normally, as it worries that a quick exit from expansionary policy will hamper the nation's economic growth, Huang said.

The Chinese economy is showing some signs of overheating after it achieved 11.9 percent growth in the first quarter, which is especially reflected by the country's sizzling property sector.

The government has rolled out a series of stiff measures to restrict mortgage lending with an eye to cool down the red-hot real estate market. On Sunday, it also asked banks to set aside more deposits as reserves for the third time this year in a clear signal to mop up excessive liquidity in the market.

Wang Xiaoyi, deputy head of the State Administration of Foreign Exchange, said on Thursday at a forum that the biggest short-term risk for Asian countries is capital inflow, as the contagion of sovereign debt crisis in Europe is likely to spread.

"Overseas speculative capital is flowing into China to bet on the appreciation of yuan, adding inflationary pressure to the Chinese economy," Wang said.