'China to witness 9.8% GDP growth'

14:15, February 25, 2010      

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China's economic recovery is firmly on track, according to Deutsche Bank, which upped its forecast for the nation's GDP growth this year from 9 to 9.8 percent.

The prediction, in the bank's China Macro Strategy paper, came after it increased its forecast for growth in the nation's export sector to a massive 30 percent this year.

In the paper, the bank raised its forecast for exports from the earlier figure of 16 percent based on stronger US economic indicators and the fact that only 2 percent of China's exports go to the fiscally troubled eurozone nations of Greece, Spain, Portugal and Ireland.

According to the paper, the nation's export growth is set to peak in the second quarter at 36 percent.

In addition, the bank expects to see "strong sequential export growth momentum", stating that even if China's export growth slows in the first quarter, which is a conservative outlook given the continued rise in US and other world economies, year-on-year export growth "should still trend towards 40 percent" in the second quarter.

The outlook is also brightened by a "rapid rise" in capacity utilization rates in export-related sectors, which suggests that pricing power is "reemerging", said the report.

According to a recent survey of 45 Chinese companies conducted by Deutsche Bank, the firms showed a very sharp recovery in their utilization rate to 84 percent in January, up from the recent trough of 66 percent in the first quarter of last year.

The previous peak was 93 percent, registered in the first quarter of 2008. In other words, over the past 12 months, capacity utilization has recouped about two-thirds of the loss due to the global financial crisis.

With both export demand and capacity utilization returning to new highs, these firms should regain a large part of the pricing power lost over the past 18 months.

The bank's outlook for China's exports contrasts with the more cautious prediction of 8 percent growth this year made by Minister of Industry and Information Technology Li Yizhong.

Xinhua News Agency reported that Li told a meeting of ministry officials on Sunday that the nation's exports were unlikely to recover to pre-crisis levels in the short term.

He attributed the slow rebound to rising international protectionism and the fact that Chinese manufacturers relied too much on overseas markets.

The minister's growth forecast was still far below 2008's 17.2 percent increase in exports, according to customs data.

Despite overtaking Germany as the world's largest exporter, China saw its exports contract 16 percent year-on-year in 2009 as overseas demand slumped.

Source: China Daily
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