The State Information Center, under the National Development and Reform Commission, predicted that China's economy would grow by about 8 percent in 2009, with investment as the major driving force. However, overcapacity will remain one of the major problems in the economy, according to the report issued by SIC on August 6.
The growth of the first, second and tertiary industry will reach 3.5 percent, 8.5 percent and 8.6 percent respectively.
The SIC estimated that urban fixed investment for the whole year would reach about 30 percent. As the inventory adjustment will mainly happen in the first quarter, investment demand will play an even bigger role in boosting China's economy and will stand at a high level in the remaining days of the year.
The rise of the Procurement Managers Index (PMI) for six consecutive months indicates that the rebound of industrial output will continue. It is estimated that the added value of China's "over scale" enterprises, that is, state-owned enterprise and private companies with annual sales of more than 5 million yuan, will increase by 8.5 percent for the whole year, which is 1.5 percentage points higher than that of the first half of the year but lower than the lowest level in the last 20 years, the 8.9 percent growth rate in 1999.
However, the overcapacity, combined with weak external demand, shrinking profits and expected slowdown in new bank loans, will hinder investment growth.
Shrinking external demand, in turn, results in more serious overcapacity. And the overcapacity also makes it more difficult to nurture new growth points and improve structure.
However, the overcapacity will also help contain inflation when the new loans surge in the first half of the year and the rebound of international commodity prices fuel the inflation expectation.
The SIC thinks that both the CPI and PPI will still go down in the third quarter. But CPI may resume growth by the end of the year and will decrease by about 0.5 percent for the whole year.
The growth of PPI is unlikely within the year. It will slump by about 5 percent for the whole year compared with 2008.
By People's Daily Online