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China's economy on track for recovery
By Wang Bo and Wang Xu (
Updated: 2009-04-13 16:40

The nation's economic growth is expected to sink to an 18-year-low in the first quarter, but analysts say the latest signs show a recovery might be in sight.

Economists forecast the country's economic growth may have dropped to an annualized rate of about 6 percent in the first quarter, but it is mainly due to the "high base" last year. The government is expected to release the data on Thursday.

"Despite the year-on-year slowdown, the Chinese economy has posted a strong recovery on a quarterly basis, making us more upbeat about the country's economic prospects," said Frank Gong, senior economist, JP Morgan, who predicted China's quarter-on-quarter GDP growth has rebounded to about 5 percent in the first quarter from only 1.5 percent three months earlier.

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The improved macroeconomic data indicates that China's economy may have begun to recover and could stage a rebound in the second half of this year with the help of the massive stimulus policies, analysts said.

Premier Wen Jiabao said over the weekend the Chinese economy has shown "better than expected positive changes in the first quarter" thanks to the massive stimulus package.

There are already signs that business activity is picking up, thanks to loose credit and the decrease of industrial inventory.

China's official Purchasing Managers' Index or PMI, a measure of activity in the manufacturing sector, rose to 52.4 in March from 49.0 in February, marking the first time the index has been in expansionary territory since September. A reading above 50 indicates expansion.

The galloping credit growth has maintained its momentum through March. Chinese banks extended 4.58 trillion yuan in new loans in the first quarter, nearly equal to the 4.9 trillion yuan new loans issued in 2008.

Meanwhile, the country's consumption also held up well. Driven by the government policies to stimulate car consumption, China's automobile sales rose 5 percent in March to a record high of 1.11 million vehicles, according to the China Association of Automobile Manufacturers. The inventory in the real estate sector is shrinking faster than expected and as Gong estimates the inventory properties nationwide is likely to be sold out in the coming eight months, compared with his earlier estimates of two years.

"The government has indicated that it is capable of unveiling more stimulus measures at any time in face of the still-evolving global financial crisis," Gong said, referring to Premier Wen's earlier claim that China has reserved "plenty of ammunition" to fight against the economic slowdown.

Predicting China could post an early rebound by the middle of this year, the World Bank warned that a full recovery depends on developments in the advanced economies.

More data in the coming months are needed to judge if the recent signs of recovery are for real, Louis Kuijs, senior economist with the World Bank, said. The bank earlier adjusted its projection for China's GDP growth this year to 6.5 percent.

Economists agreed that the major risk to China's overall growth lay on the external side and some insisted the country may undergo long term adjustment given the fact that its trade partners, such as the US, may take three to five years to ride out of the recession.

"If there is no recovery in the G3 economies, China will not be able to sustain its growth rebound through 2010," a Morgan Stanley research note on global economy said.

According to the General Administration of Customs, China's exports continued to fall in March, but in a milder magnitude of 17.1 percent compared with 25.7 percent in February.

US President Barack Obama said last Friday that the US economy was beginning to show "glimmers of hope", as mortgage interest rates declined to historic lows, while refinancing has shown significant pick-up. But some analysts said the largest economy in the world and also China's major trade partner is far from bottoming out, given the severe stress of financial malaise and job losses.

Li Jianwei, senior economist with the Development Research Center affiliated to the State Council, said if the country's exports plunged by as much as 20 to 30 percent due to the weakening demand in the US and Europe, it could hardly achieve the targeted 8 percent growth without the help of further stimulus measures.

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