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People's Daily Online>>China Business

Bank of China: Hard landing possibility slim

By Chen Jia (China Daily)

16:10, March 29, 2012

China's economic growth is expected to accelerate slightly in the second quarter after bottoming out for the year in the first quarter, supported by monetary policy easing and a gradual thaw in the overseas market, said a report from Bank of China Ltd.

The bank forecast that second-quarter GDP growth could rebound to 8.4 percent from an estimated 8.2 percent in the first three months, indicating only a slight possibility of a "hard landing" for the world's second-largest economy, the report said.

The People's Bank of China - the central bank - is likely to further cut banks' required reserve ratio in the first half to achieve steady economic growth and increase longer-term liquidity, the report said.

"In the next few months, the government still has room to make slight pre-emptive changes in monetary policy, to avert major potential risks from sharply lower exports and a fast-cooling property market," Cao Yuanzheng, chief economist with the bank, told a news conference in Beijing on Wednesday.

Continued declines in the consumer price index, a main gauge of inflation, which may fall to 3 percent in the second quarter, are expected to provide more scope for monetary easing, the bank said.

CPI may fall to 3.6 percent in the first quarter as industrial production slows and living costs decline, the bank said.

CPI increased 5.4 percent in 2011, but in February, it suddenly dropped to 3.2 percent from 4.5 percent in January, the National Bureau of Statistics reported.

However, a faster-than-expected US economic recovery and relative stability in the eurozone may help China's exports rebound in the second quarter, said Cao.

In the next three months, exports may expand 7.5 percent, compared with an estimated 6.5 percent in the first quarter, according to the bank.

The government is also expected to consolidate a proactive fiscal policy that can steadily increase investment in infrastructure construction, especially public housing, and that investment will remain the pillar of the economy in the short run, said Zhen Feng, a researcher with the Institute of International Finance of the Bank of China.

Peng Wensheng, chief economist in China with China International Capital Corp, said that China's fiscal deficit is likely to expand substantially this year.

"It can be supported by the structural tax cut policy, which will play a significant role to stabilize GDP growth and transform the pattern of economic development.

"But measures to tighten property controls may not change in the coming months," Peng added.

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