A surge in bank lending and fixed asset investment has strengthened economists' faith in China's recovery and brought the target of 8 percent growth within reach for the world's third-largest economy.
In its Asian Development Outlook 2009 Update report yesterday, the Asian Development Bank (ADB) raised its forecast for China's economic growth this year to 8.2 percent from the 7 percent it forecast in March.
The Manila-based multilateral finance organization added that China's economy will likely grow by 8.9 percent next year if Beijing maintains its stimulus spending.
"The massive fiscal stimulus announced last year and the aggressive monetary easing in 2009 have softened the blow of the global slump on the economy," said Lee Jong-wha, chief economist with the ADB.
The relatively high growth rate of 7.1 percent during the first half of 2009 was driven largely by investment, which contributed 6.2 percentage points, said the report. The document maintained that consumption contributed 3.8 percentage points, but said that number was largely offset by a 2.9 percentage point decline in net exports.
But the bullish report was too conservative for one senior economist.
"I think the ADB's estimation is a bit modest," said Wang Yuanhong, senior economist and head of the Economic Forecasting Department of the State Information Center.
Wang said China's annual GDP growth rate, both this year and next, may exceed the ADB's prediction.
The bank said China's stimulus spending and record bank lending could interrupt efforts to restructure the economy away from investment-heavy and export-led growth toward private consumption.
And Robert Wihtol, ADB's China director, warned that the country probably will not see double-digit growth in the next few years because of weak external demand, possible asset bubbles, bad loans and the failure to restructure the economy.
He said China's stimulus policy could pose a risk to domestic growth if it is not sustained and added that China should focus on boosting employment for long-term economic growth.
He also called on China to set up a solid social safety net so people spend more of their earnings, instead of saving for a rainy day.
Wang, from the State Information Center, pointed out that the Chinese government has invested heavily in recent years on public health care and improving incomes.
The ADB report said Asia is the region most likely to lead the world out of the global economic recession. Asia, excluding Japan, is expected to grow by 3.9 percent in 2009 and the ADB expects it to grow by 6.4 percent next year.