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Tue, Jan 06, 2009 - Page 10 News List

Citigroup predicts 8% growth in China

BLOOMBERG

Chinese economic growth, buoyed by the government’s 4 trillion yuan (US$586 billion) stimulus package, will likely exceed 8 percent this year, Citigroup Inc said.

“The most important reason supporting our confidence about 8 percent growth is the government’s will and ability,” Huang Yiping (黃益平), Citigroup’s chief Asia Pacific economist, wrote in a report distributed yesterday.

PRIORITY

“Latest official statements confirm that 8 percent growth is now a political as well as economic policy priority, Huang said.

China needs growth of at least 8 percent to create enough jobs for the 20 million workers entering the urban workforce annually and ensure social stability.

The government unveiled a stimulus plan aimed at creating jobs in November and last month called on state-owned companies to avoid firing workers.

SLOWDOWN

First-quarter economic growth may be as low as 5 percent, the slowest in more than a decade, before government spending on infrastructure and on bolstering consumption spurs second-quarter gains, Huang wrote.

Growth may “rebound very sharply” starting at the end of that quarter, he wrote.

Strong growth in China compared with other economies worldwide will lead to gains in the yuan, Huang said.

He also predicted the Chinese currency will appreciate more than 4 percent this year to 6.55 yuan per US dollar.

“People will realize that China’s macroeconomic picture looks better than the rest of the world,” Huang said in a phone interview from Hong Kong yesterday.

China may also increase direct investment overseas this year, especially in the finance and resource industries and reduce purchases of sovereign debt, Citigroup said.

Direct overseas investment could “easily” be “several times” 2007’s US$26.5 billion, Huang said.

DEFLATION

Deflation may be a problem this year as slumping demand for Chinese exports forces companies with growing inventories to cut prices, according to the report.

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