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China economy poised for 'sustainable' growth

By Wang Bo (China Daily)
Updated: 2009-06-10 09:36

The Chinese economy could stage a sustainable recovery this year, as domestic consumer demand starts to strengthen in addition to the government stimulus package, analysts said.

With the help of a massive fiscal stimulus and strong bank lending, the domestic economy is posting a gradual recovery after GDP growth dipped to 6.1 percent in the first quarter this year.

In parallel, property and auto sales have been surprisingly robust so far, beating the market expectation that demand for durable goods could be weak amid the global recession.

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"Strong public sector investment and resilient end-user demand could become the dual engines to drive the economy in the coming months," said Frank Gong, chief China economist at JP Morgan.

China's car sales have reached record highs in response to the government sales incentives.

Between January and May, China's homemade auto sales topped 4.96 million units, up 14.29 percent from a year earlier, official reports from the China Association of Automobile Manufacturers showed.

Property transaction volumes in China bounced back strongly this year, with primary sales in the country's seven major cities rising 70 percent year-on-year in the first five months, according to Gong.

"The lower inventory level in housing and improved developer liquidity position after persistently strong property sales should help bring back private investment into housing much sooner than expected," he said.

In recent months, China's major real estate developers have started to buy land in a rush to jumpstart new property projects, signaling that a strong rebound of private housing investment was about to take place in the coming quarters.

Vanke Group, China's largest real estate developer, has spent a substantive 2.31 billion in May to buy land in a number of cities across the country, and many other major developers have all followed suit.

Analysts said that the real estate market regaining momentum was of great significance in bringing the Chinese economy back on track, as the property sector contributed to a quarter of the country's total fixed assets investment and about 10 percent to its GDP.

With the recent rally in global commodity prices and continued resource price reforms, Gong said the specter of deflation has been fading and inflation expectations were mounting.

The country opened the spigot for bank lending this year, with a total of 5.17 trillion yuan loans being extended during the first four months to boost market liquidity.

"The risk of inflation is not likely to return in the next 12 to 18 months, as the global economy is grappling with the problem of excess production capacity," Gong said.