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Oecd Raises China Growth Forecast To 7.7% On Stimulus Measures

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OECD Raises China Growth Forecast to 7.7% on Stimulus Measures

The Organization for Economic Cooperation and Development raised its forecast for China’s economic growth and said stimulus measures may spark the biggest boom in urban investment since the early 1990s.

China’s economy will grow 7.7 percent from a year earlier, up from a 6.3 percent forecast in March, the Paris-based group said in a report today. Gross domestic product will climb 9.3 percent next year, up from an 8.5 percent estimate, it said.

The World Bank, Barclays Capital and Standard Chartered Bank raised their estimates for China’s growth in the past week after record lending fueled a surge in investment. The central bank’s Vice Governor Su Ning said yesterday that the world’s third-biggest economy is showing positive signs and the government is staying confident.

“In the last two to three months China has turned its economy around,†said David Cohen, an economist with Action Economics in Singapore. “Government officials are increasingly confident that they’ll get closer to their 8 percent growth target than many feared a few months ago.â€

The OECD estimate for this year compares with a World Bank forecast of 7.2 percent growth.

The government’s stimulus plan and record bank lending will “likely result in one of the largest booms in urban investment since the early 1990s,†the OECD said.

Housing investment is set to accelerate on easier financing and the government’s plan to build subsidized housing under its stimulus program, the OECD said. Faster economic growth also will support the labor market, helping to sustain consumption, the report added.

Quick, Forceful

“The fiscal stimulus package introduced in November 2008 is feeding through quickly and forcefully,†the OECD said.

China’s demand, driven by infrastructure projects, has contributed to a rebound in oil and commodity prices, it said.

The outlook for economic growth next year is more uncertain and depends on how private consumption and business investment perform as fiscal and monetary stimulus eases, the report said.

China has ample room for more spending to boost growth if private investment doesn’t recover, the OECD said. Any additional stimulus should be “oriented to social rather than construction outlays,†it added.

Downward pressure on consumer prices will continue and faster growth next year will not be sufficient to prevent inflation falling from 2 percent in 2009 to 0.5 percent next year, the report said.

Financial regulators need to “keep an eye†on the quality of banks’ loan portfolios and there is “some downward risk from the possibility that the overall quality of bank lending will deteriorate.â€

The financing of local government investment in infrastructure is “less than transparent,†the OECD said.

One cannot deny the power of China and the willingness of the nation to succeed.

With such incredible growth it's no wonder that the EU and USA are crying like babies and balking on trade agreements.

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