China won't see a sharp drop in its economic growth in the second half as investment and consumption are likely to rise to partly offset weaker export expansion, economists said yesterday.

The central government is not likely to loosen its tight monetary policies in the short term but is expected to refrain from raising interest rates, they said.

Besides, the country may push forward fiscal policies, including raising tax rebates, to bolster exports, they added.

Investments on China's mainland are on track to rebound as rebuilding efforts in the regions that have been hit hard by the devastating earthquake in May have started.

Urban fixed-asset investments jumped 29.5 percent in June after climbing 25.6 percent in the first five months, the National Bureau of Statistics said yesterday. For the first half of this year, urban investment jumped 26.3 percent, up 0.4 percentage point from the same period in 2007.

"Investment is still the main key for the government to counter changes in external demand," said Huang Yiping, chief Asia economist at Citigroup Inc in Hong Kong. "The government has probably already increased spending on earthquake rebuilding in Sichuan Province during June."

While a weakening external demand should slow investment in manufacturing, spending on infrastructure, urbanization, resource development and environmental protection could hold up well, Huang said.

Consumption also grew rapidly in the first half of this year with retail sales rising 21.4 percent in the six-month period, a 6-percentage-point climb from the same period last year, the statistics bureau said yesterday.

The growth rate in June reached 23 percent, the fastest pace since the bureau began compiling the figure in 1999.

Urban disposable incomes advanced 14.4 percent to 8,065 yuan (US$1,200) for the first half from a year earlier.

Lower forecasts

However, major investment banks, including Goldman Sachs Group Inc and JPMorgan Chase & Co, yesterday lowered their forecasts for China's economic growth this year as they predicted the nation's exports may further falter.

China's exports expanded 21.9 percent in the first half of this year, down 5.7 percentage points from the same period in 2007, due to a global economic slowdown and the appreciation of the yuan.

"The contribution of net exports growth is expected to fall to 1.2 percentage points in 2008 and further to nil in 2009, compared with 1.6 percentage points in our previous forecast for 2008 and 3.2 percentage points in 2007," Goldman said in a note.

Goldman revised down its estimate for China's economic growth to 10.1 percent in 2008 from an earlier forecast of 10.5 percent. JPMorgan slashed its projection to 10.2 percent from 10.5 percent previously.

Goldman no longer expects the People's Bank of China to raise the benchmark interest rates this year. Standard Chartered Bank yesterday also drastically cut back its outlook of a four-rate hike for 2008 to zero.

Monetary policies in the second half will likely include continued curbs over commercial banks' lending and backing the yuan's appreciation at a slower pace, economists said.

Stagflation risks

"Loosening the monetary policy will run the risks of stagflation, so there will be no easing for the rest of this year," said China Galaxy Securities Co in a note yesterday. "The potential policy change may include adjusting tax rebates for struggling exporters in East China."

Goldman argued that the government should cut import value-added tax rates, slash VAT tax for fixed asset investments, and further reduce and rationalize personal taxes.

"We are expecting some of these measures, and other supportive fiscal policies to be adopted likely early next year, after inflation pressures subside," Goldman said.

(Shanghai Daily July 18, 2008)