China think tank: Economy to grow 7 percent in 2Q

[May 04, 2009]  SHANGHAI (AP) -- Robust investment backed by stimulus spending will likely help China's economy to expand 7 percent in the second quarter, showing the economy may be rebounding from the financial crisis, a government-affiliated think tank said in a report published Monday.

That would be an improvement from the 6.1 percent growth it notched the first quarter, its slowest rate in at least a decade.

Meanwhile, investment in fixed assets such as factories and construction is forecast to rise 27.6 percent in the second quarter from a year earlier, the Beijing-based think tank, the State Information Center, said in the report carried in the state-run newspaper China Securities Journal. That is slightly lower than the 28.8 percent growth seen a year earlier.

Those projections and other recent numbers suggest that a 4 trillion yuan ($586 billion) government spending package aimed at catalyzing investment and spending is beginning to take hold.

A business group says China's manufacturing has grown for a second month in April, adding to signs the country's slumping economy is strengthening as consumer demand and exports improve.

Late last week, the state-sanctioned China Federation of Logistics and Purchasing said its purchasing managers index, based on a survey of manufacturers, rose to 53.5 from March's 52.4. Figures above 50 indicate an expansion.

Factory output and investment slumped last year as exports plunged due to a sharp drop in overseas demand. But factory output and investment rose in March, prompting analysts to say the worst of the slump might be past.

A similar survey by Hong Kong brokerage CLSA Asia-Pacific Markets, released Monday, rose sharply to 50.1 in April, from 44.8 in the previous month.

"China's government has been extremely successful in stimulating investment and, combined with a sharp improvement in export orders, this has pushed the PMI back into positive territory in April," Eric Fishwick, CLSA's head of economic research, said in a statement.

But he warned that the rise in overseas demand likely reflects short-term adjustments in inventories that might not persist.

The State Information Center's report likewise forecast that exports would fall in the second quarter despite the uptick in growth: slipping 20.2 percent from a year earlier to $287.7 billion. It said it expects imports to fall even further -- by 25.5 percent to $225.6 billion.

A sustained recovery will depend, economists say, on stronger domestic demand.

To that end, state-run banks, largely insulated from the credit crunch in other markets, have heeded government orders to back growth, issuing 4.6 trillion yuan ($673 billion) in new loans in the first quarter of the year, 20 percent more than in all of 2007.

[Associated Press]

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