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China GDP forecast raised

(China Daily/Agencies)
Updated: 2009-05-15 08:04

Morgan Stanley raised its forecast for China economic growth to 7-8 percent from 5 percent for 2009 but warned the pace will slow next year as a protracted global slowdown deals a blow to the export-led economy.

The government's 4 trillion yuan ($586 billion) stimulus package announced late last year will provide temporary support to China's economy, but growth may fall back to 5.5 to 7 percent in 2010, as external demand will remain weak, Morgan Stanley Asia Chairman Stephen Roach said yesterday.

"I think there's a possibility that this year's strength may borrow from growth that might otherwise occur next year," Roach said in Shanghai. "It's premature to say China is enjoying a V-shaped recovery. I think the outcome is going to be closer to the letter W."

Related readings:  Morgan Stanley ups 2009 China GDP forecast to 7%  Filling the gaps in GDP  China GDP to grow by 8.3% in 2009, says CASS  China′s GDP up 6.1% in Q1

Roach's views contrast with more optimistic tones of other China economists who are betting on a quick turnaround after some encouraging data offered evidence that the country's expansive monetary and fiscal policies are starting to take effect.

Goldman Sachs raised its China growth forecast to 8.3 percent for 2009 and 10.9 percent for 2010, citing strong expansion in both fixed-asset and private sector investment.

"I'm worried about China staying on the same unbalanced, unsustainable path," Roach said, adding that China adopted the same investment-focused strategy during the previous two crises in 1997/98 and 2000/01.

But China's hopes to use infrastructure investment to sustain growth while waiting for the global economy to snap back would be dashed this time because the current crisis, the worst since the 1930's, will curb external demand for years, he said.

Roach expected the government's 4 trillion yuan stimulus would boost the share of investment to 45 percent of GDP from 40 percent. "Those levels are unheard of and underscores the continued building-up of imbalances."

Roach suggested that China should strengthen its social safety net so that people will become more willing to spend.

China should double the size of the country's social security fund to $160 billion immediately and boost the private consumption share of the Chinese economy to 50 percent from currently 36 percent in five years, he said.

"China needs to stop depending on the over-extended American consumer and needs to rely more on the untapped potential of its own consumers," Roach said.