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Top expert sees H2 rebound

By Lan Lan (China Daily)

08:29, July 13, 2012

Deflation unlikely to threaten as full-year economic growth is expected to reach 8 percent

China is unlikely to experience deflation this year as a rebound in economic growth is in the cards for the second half, a leading economist said on Thursday amid increasing concern sparked by the recent drop in inflation and the economic slowdown.

China's full-year economic growth rate is likely to be around 8 percent after hitting bottom in the second quarter, said Yu Bin, director of the department of macroeconomic research of the Development Research Center of the State Council.

With the economy regaining momentum in the second half, there is little chance of deflation this year, Yu told a news conference in Beijing.

Some economists warn that deflation is looming as the country's consumer price index rose in June by its lowest amount in 29 months, and the producer price index, a main gauge of inflation at the wholesale level, has experienced negative growth for four consecutive months.

Yu made the remarks a day ahead of the release of second-quarter growth figures, which many economists expect to be the lowest since the first quarter of 2009.

On Thursday, the Asian Development Bank lowered its forecast for China's 2012 economic growth rate to 8.2 percent, from 8.5 percent in April.

"China has seen a fall in net exports, industrial production and in fixed-asset investment, despite the government's spending on health, education and big infrastructure projects," the bank said in a report.

Yu said the economy is likely to stabilize and recover steadily in the second half thanks to rebounding exports and steady growth in investment.

China's exports are likely to grow by around 10 percent this year, Yu said. The country's exports rose 11.3 percent year-on-year in June, slowing from 15.3 percent in May.

A large stimulus package similar to the one introduced in late 2008 is not necessary, he said, noting that investment will increase at a steady pace.

Manufacturing investment will increase along with rebounding exports, and infrastructure investment in urban rail transit systems, high-speed rail, water utilities and electric appliances will increase, he said.

Also, the large population in China's western and central areas will provide enormous potential for consumption, and investment will increase in these areas thanks to the country's economic restructuring.

Efforts to fine-tune monetary policy are necessary. If growth picks up in the third quarter and the global economy recovers moderately, the room for further cuts in banks' reserve requirement ratio and interest rates will considerably narrow, he added.

The central bank has cut interest rates for the second time within a month and lowered banks' required reserves three times since last November.

The move to narrow the spread between deposit and lending rates is a step toward interest-rate liberalization, and lower lending rates could increase demand for loans and lower companies' financing costs, he said.

"China's economic growth is shifting from an era of high-speed growth to medium-speed growth," Yu said.

After maintaining an average growth rate of 10.5 percent in the previous 10 years, Yu forecast that the country will see a slower average growth rate of about 7 percent to 8 percent over the next decade.

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