China's economic growth will reach 8.5 percent this year and 8.7 percent in 2013, making the country the strongest driving force behind growth in Asia, said the Asian Development Bank (ADB) in its Asian Development Outlook 2012 report released on April 11.

Flourishing investment and consumption were the main factors driving China's economic growth, the ADB said. Fixed asset investment is projected to remain the major engine of growth, increasing 20 percent or more in 2012 and 2013. Nominal private consumption is expected to grow almost 12 percent in both 2012 and 2013. Exports and imports are expected to increase around 15 percent and 18 percent respectively in 2012, edging up in 2013. The contribution of net exports to GDP growth is projected to remain negative. Inflation is forecast to decline to about 4 percent. As the inflation rate drops, there will be more room for China to implement a loose monetary policy.

The main downside risk is uncertainty over external demand, including the slow recovery in the United States, fiscal and debt concerns in the EU, and Japan's economic setbacks, the ADB said. Despite risks, a strong fiscal position and declining inflation will make it possible for China to pursue monetary expansion, helping the Chinese economy realize a soft landing.

Economic growth in developing Asia will ease to 6.9 percent in 2012, the ADB report said. But as global consumption revives, it will pick up to 7.3 percent in 2013. Despite the slight drop of the growth rate from 7.2 percent in 2011, it will edge back again along with increasing global demand. Also, as Thailand recovers from last year's floods, economic growth in Southeast Asia will rise to 5.2 percent from 4.6 percent last year.

Since commodity prices slackened at the end of 2011, inflation has no longer been a direct threat to most Asian economies. But policymakers should take precaution against potential oil price hikes and volatile capital flows.

Asia's current account surplus narrowed to 2.6 percent of GDP in 2011 from 4 percent in 2010 because sluggish demand in Western countries put a lid on Asian countries' exports. Trade among Asian countries, however, has somewhat offset Western countries' sliding demand, the ADB said.