China 2006 GDP growth seen at 10.6 pct, slowing to 9.5 pct in 2007 - JP Morgan
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BEIJING (XFN-ASIA) - JP Morgan said it has revised up its 2006 GDP
growth forecast for China to 10.6 pct, as accelerating exports and
strong consumption growth continue to offset a third quarter slowdown
in investment.
The brokerage said it expects the economy to grow at a solid, but
somewhat slower pace of 9.5 pct in 2007, as fixed-asset investment
(FAI) and export growth slow modestly, while consumption remains
strong.
Administrative controls on land use and bank lending are likely to
continue next year, while the central bank is expected to increase
interest rates only slightly, with hikes in the bank reserve ratio
requirement (RRR) seen as the primary means to contain liquidity, JP
Morgan said in a note.
It added that tightening is likely to occur via increased appreciation
of the yuan, with the currency approaching 7.0 to the US dollar by the
end of 2007.
JP Morgan said it does not expect investment to slump next year,
despite the significant slowdown of FAI growth to 17 pct in October,
compared with 30 pct in the first half.
'Further RRR hikes and faster yuan appreciation in 2007 will continue
to curtail investment in real estate and sectors deemed
energy-intensive or environment-damaging. But the fundamental economic
drivers of the investment cycle are still largely in place,' the
brokerage said.
'Overall, fixed investment growth will likely settle within the policy
maker's comfort zone of 15-20 pct next year, although the risks to this
forecast remain on the high side,' it added.
JP Morgan noted that the lack of consensus among the leadership on the
extent and pace of currency appreciation raises the risk that a
slower-than-expected rise of the yuan will cause economic growth,
particularly fixed investment, to overshoot market expectations.
It said it was increasingly obvious that conflicts over monetary policy
goals and ineffectiveness of monetary policy will become more of a
problem unless there is a more meaningful adjustment to the currency