Inflation and a trade surplus will remain key issues in China's economy this year while volatility is also expected with economic growth, economists said before the government is due to release last year's economic data this week.

 

"High volatility but limited upside will be the main characteristics of the China economy this year. We expect the China economy in 2008 to be as volatile as it was in 2007, or even more so," said Credit Suisse in a report yesterday. "But we expect the upside to be more limited (below 10 percent)."

 

The Switzerland-based bank views the positive factors as roughly balanced with the negative ones.

 

It forecast China's gross domestic product will remain strong, around 10 percent, against the backdrop of a bleak global growth environment. The yuan's appreciation and ample liquidity will contribute to the country's growth.

 

The negative factors include risks of rising inflationary pressure and tighter government policy regarding property.

 

"We expect the consumer prices to rise from 4.7 percent in 2007 to 6.5 percent this year, as inflation expectations are building up very rapidly and are supported by a sharp surge in base money in the balance sheet of the central bank," said Credit Suisse.

 

It estimated the one-year lending rate to rise from the current 7.47 percent to 8.34 percent by the end of 2008 while the yuan will stand at 6.75 against the greenback at year's end.

 

Liang Futao, an analyst at Shenyin Wanguo Securities Research Securities Co, shares some of Credit Suisse's views.

 

"To contain inflation and the trade surplus are two key issues this year in the master plan of China's tighter monetary policy," said Liang.

 

He expected China's export growth to slow by 20 percent due to a not-so-rosy global economic outlook and more trade barriers.

 

Last year, China's trade surplus jumped 47.7 percent from a year earlier to a record high of US$262.2 billion, according to the General Administration of Customs.

 

Liang predicted the trade surplus this year will grow at a much slower pace of 12.5 percent to US$306.3 billion.

 

He posted a moderate estimate for consumer prices and said they may expand by about four percent.

 

China's main gauge of inflation jumped to an 11-year high of 6.9 percent in November and pushed the combined figure for the first 11 months last year to 4.6 percent.

 

China has raised interest rates six times last year and has just announced another rise in banks' reserve requirement last week to cool the world's fastest growing economy and rein in inflation.

 

(Shanghai Daily January 22, 2008)