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HSBC: Govt-backed investment to be China's key growth driver

(Xinhua)
Updated: 2009-01-16 19:33

The Chinese economy is likely to record a relatively weak growth in the first quarter of 2009, but thanks to an unprecedented stimulus package announced earlier, it will be followed by a GDP growth of well over 8 percent in the second quarter, HSBC said Friday in its projection for 2009 and 2010.

Speaking at a news briefing, HSBC Chief Economist for China Qu Hongbin said new spending in the 4 trillion yuan ($586 billion) stimulus package, which was announced on November 9 last year, were likely to contribute an annual GDP growth of 2 to 4 percent over the next two years.

"Government-supported investment will replace exports as the key growth driver," Qu said.

The Chinese economy will face heavy pressure in terms of exports for quite some time to come, as the Euro zone, the United States and Japan experience recession while signs showed that growth in Chinese exports to other emerging markets began to be affected.

But China still had a few unique strengths such as its cheap and adequately literate labor, convenient infrastructure and established regional supply chains.

"The Chinese policy of embracing globalization remains intact," Qu said in the report China's New Deal: Priming the Domestic Pump.

The banks in China had not experienced any systematic losses or credit crunch that their Western counterparts suffered in the recent financial tsunami, he added.

The central government and the local governments were also trying to stimulate the economy by investing heavily in construction, while making efforts to widen social security coverage, which has been regarded as the key to cracking consumption growth.

Qu said a growth of around 8 percent for China will generate some 3 trillion yuan ($439 billion) additional demand through 2010, with both commodity and advanced machinery exporters expected to benefit from China's growth.

The Asian economies will gradually pick up growth momentum in the second quarter, said Frederic Neumann, HSBC's senior Asian economist who also spoke at the briefing.

Garry Evans, HSBC Chief Equity Strategist for Asia Pacific, said he expected the Asian equity markets to end near where it had started at the beginning of the year, with big swings expected due to signs of recovery and intermittent bad news.