Chinese Economy in Fast lane, Challenges Remain in 2010

BEIJING, Jan. 11-- China's economy is forecast to be in the fast lane in 2010, but mounting difficulties are still on the way ahead, leading economists told Xinhua.

RAPID GROWTH FORECAST

"The investment and economic growth have gained great momentum, and China's gross domestic product (GDP) is likely to grow at 10 percent year on year in 2010," said Hu Angang, director of the Center for China Study of Beijing-based Tsinghua University.

China's GDP expanded 8.9 percent in the third quarter in 2009,accelerating from 7.9 percent in the second quarter and 6.1 percent in the first, fueled by the growing domestic consumption and the government's economic stimulus package rolled out since November 2008.

"China's investment and industrial growth have picked up steam, and the domestic consumption has stabilized due to an array of governmental stimulus measures," said Jia Kang, president of the Research Institute for Fiscal Science of the Ministry of Finance.

Lian Ping, chief economist with the Bank of Communications, believed that China's economy would see a more robust growth compared with last year, as rising domestic consumption on the back of residents' income rise and improving exports would bolster the economic growth through the year.

Lian held that the strong real estate and automobile markets in China would continue to give a boost to investment and consumption in relevant sectors.

Auto sales hit 12.23 million units in first 11 months last year in China, up 42.39 percent year on year, boosted by the government's policy to halve purchase tax on autos with engines of up to 1.6 liters or less. China's property sales and price began to pick up since February in 2009.

Lian's view was echoed by Isaac Souede, chairman and chief executive officer of U.S.-based Permal Group Inc., a leading asset management firm.

"China's economy is full of vitality, as the country's industrial upgrading and urbanization are in process, which mean plenty of investment opportunities and growth potential," Souede said, adding that the country's economy might register a growth higher than 10 percent this year.

SUSTAINABLE GROWTH

Despite expectations for the economy's robust growth, experts held that China should lay more focus on its economic restructuring.

"China doubtless needs growth, but a more sustainable development pattern featuring improved growth quality and a better economic structure is essential to the economy," Hu said.

More efforts would be made to promote the transformation of the economic development pattern and structural adjustments in 2010, according to the Central Economic Work Conference last month, setting the tone for the economic work this year.

Potential inflation brought by the record new bank credit in 2009, residents' income gap, lack of a sound social safety net, financing difficulties for smaller firms are among the top 10 concerns of China's long-term sustainable development, according to a recent survey targeted at 50 leading Chinese economists conducted by the Economy and Nation Weekly, a magazine run by Xinhua.

Problems including overcapacity in some industries and weak private investment loomed large against the backdrop of the economic downturn, Zhang Xiaoqiang, vice minister of the National Development and Reform Commission, the top economic planning agency, said on Tuesday.

Robert Kuhn, an international investment banker and author of a series of books about China, said that China's growth should continue in 2010 as it did, remarkably, in 2009, with the major concern being the quality of the massive loans that were made in 2009.

 "Investment in industries with overcapacity and redundant infrastructure projects threatens the quality of the bank credit," China's central bank governor Zhou Xiaochuan, said earlier this month.

"The financial crisis has catalyzed what I believe to be a permanent shift in the economic order in the world. China must adapt to this historic shift -- and this should be praised by the Chinese people, since they will have to spend more, consume more, to sustain the economy -- and in this process their standards of living will increase," Kuhn said.

Kuhn held that the challenge for China was to increase the value-added elements of products, primarily through technology and branding, as it would enable companies to pay higher wages to workers, whose buying power would stimulate and sustain the economy.