Optimism over China's GDP

Shanghai Daily, April 13, 2011

Analysts are generally optimistic over the health of the Chinese economy as a whole though they may worry about inflation, and the upcoming release of first-quarter and March economic data will probably prove they are not far off the mark.

The National Bureau of Statistics is set to unveil key economic data on Friday, and there will be keen interest in the gross domestic product for the first three months and consumer prices in March.

Wang Qing, an economist at Morgan Stanley, said the GDP growth in the first quarter may slow to 9.6 percent from 9.8 percent a quarter earlier in light of the escalated tightening to control inflation and rein in property prices.

"Economic growth regained momentum in the third quarter of 2010, and the strength extended into the fourth quarter," Wang said. "The growth will continue in a stable manner despite tighter policies."

China has raised the interest rates twice so far this year. The reserve requirement ratio, the amount of money banks must set aside with the central bank, was also lifted three times to soak up market liquidity and rein in inflation.

Jing Ulrich, managing director at JPMorgan, said the broad picture remains rosy for China.

"How to control inflation may be the biggest challenge for China right now," Ulrich said. "We estimated the inflation rate may climb above 5 percent in March, and will continue to expand until June or July."

The Consumer Price Index, the main gauge of inflation, grew an annual 4.9 percent in January and February, exceeding the government's target to cap it under 4 percent.

Wang was slightly more pessimistic when he said the CPI may climb 5.2 percent last month. He sees food costs, which may soar 11.2 percent year on year, as being responsible for the rise in CPI.

"Against the backdrop of rising external uncertainties, the decisive tightening not only hinted that inflationary pressure remains high but also suggested the authorities may be confident in a sustained underlying growth momentum," Wang said.