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Think tank: Economy will rise 9.8% in 2008

By Li Hong (chinadaily.com.cn)
Updated: 2008-12-02 15:53

Pessimism about a precipitous slowdown is dissipated by the government's top think tank, as the China Academy of Social Sciences (CASS) reported Tuesday the GDP growth rate is expected to hover around 9.8 percent this year, and at least 9 percent for 2009.

But, uncertainties are on the rise as the global economy remains in a precarious state. Economists in the United States just said that the American juggernaut entered into recession at the end of last year. Though economists did not predict how long the US contraction might last, more tend to believe that a bottoming-out will not come until sometime in 2010.

And, that doesn't bode well for China, the world's major developing economy. CASS, in its annual year-end Blue Paper, warned that more Chinese businesses will start slashing jobs, posing an exceptionally difficult year in 2009 for employment.

CASS also asserted in the report that China's housing prices will continue to slump, because potential homebuyers are kept in an increasingly dampened mood, and choose to snap their pockets shut. Some pundits are forecasting an average price decline of 20-30 percent for properties in Beijing, Shanghai, Guangzhou, and other cities.

Related readings:  Hu: China's economic development faces challenges  China facing bigger economic downside risk  WB: China's GDP to slow to 7.5% in 2009  Report: China economy to grow 8.6% in 2009

The silver lining behind all those negative news is that Beijing's 4-trillion (nearly US$600 billion) economic stimulus plan, will jerk up capital investments, and propel consumption of major industrial products, like steel, cement, other metals and chemicals.

Some even anticipate that Beijing will launch another stimulus plan of 2 trillion yuan more to put China's economy on the fast lane.

The industrial output value for November is expected to rise 7 percent as compared with last year, but the CPI (consumer price index) will plunge to below 3 percent, leaving more room for China's central bank to cut interest rates, analysts say.

Gloom in the United States

A psychology of fear has unnerved businesses and consumers alike and is likely to prolong the American recession, though officials in Washington keep reiterating that they would do whatever was required to turn the dire economy around.

"While we are making progress, the journey ahead will continue to be a difficult one," said US Treasury Secretary Henry Paulson on Monday.

The U.S. Federal Reserve has lowered its benchmark interest rate to mere 1%, and its chairman Bernanke said it could be lowered further in December to provide liquidity to the crippled credit market.

The People's Bank of China, China's central bank, last week slashed the bellwether one-year interest rate by 108 basis points, to 2.52% for deposits. However, some Chinese economists say that the bank will reduce the rate further at the year-end or early next year to support a sliding economy.

China’s yuan to depreciate?

At the unveiling of the CASS economic Blue Book Tuesday, a leading research fellow of the academy told reporters that Beijing should depreciate its currency, the yuan, against the US dollar to cushion the greenback's sharp appreciation versus the euro, the pound, and other major world currencies.

"As part of the government’s macro control efforts, adjustment of the yuan's exchange rate is reasonable and necessary," said Pei Changhong, director of the Institute of Finance and Trade Economics under CASS.

"If the dollar continues to rise against the euro, we will have to adjust the value of the yuan," said Pei, adding a proper exchange rate level should support the nation's export sector.

Pei's comments came on the heels of the yuan's largest one-day fall against the US dollar Monday. Market watchers say the fall is a sign that Beijing may have decided to use currency depreciation to bolster its struggling export sector and ease unemployment.

China’s export sector is most severely impacted by the ongoing global economic crisis, largely due to the appreciation of the Chinese currency and a shrinking overseas demand.

The yuan has gained about 7 percent against the US dollar in the first half of 2008. And, during r the past two months, the dollar has gained more than 20 percent against the euro, leading to a de facto appreciation of the yuan, which remained largely stable against the dollar during the period.