OECD bullish about mainland
The Organisation for Economic Co-operation and Development has unveiled a surprisingly bullish forecast for the mainland's economic growth prospects, claiming consumption and export growth are on an upward path.
In contrast to less positive assessments given by the International Monetary Fund and the Asian Development Bank earlier this year, Paris-based OECD expects moderate growth on the mainland with imminent entry to the World Trade Organisation a catalyst to reform.
Real gross domestic product growth is forecast to rise from 7.1 per cent last year to 7.7 per cent this year and 7.9 per cent next year. Last month, the IMF and the ADB projected declining growth rates, with the IMF forecasting 7 per cent growth this year, and 6.5 per cent next year, and the ADB estimating 6.5 per cent this year and 6 per cent next year.
'A number of signs suggest growth may be rebounding moderately,' the OECD said.
Policy actions by Beijing, such as increased welfare payment and salary rises for civil servants, have helped boost consumption and enterprise profits are up for the first time since 1996.
Recent rampant deflation is easing while exports are rising strongly, the OECD said. This should lead to lower interest rates, combined with an expansionary fiscal policy.
The continued pump priming in the mainland economy - which will see the government issue 100 billion yuan (about HK$93.63 billion) in extra-budgetary bonds for infrastructure projects - should further boost growth.
Buoyant external demand means exports should also rise, but imports will increase in line with government infrastructure spending, leading to a narrowing of the current account surplus.
The mainland's expected entry into the WTO should also reverse recent declines in foreign-investment flows, but more importantly accelerate reforms of ailing state enterprises and the weak financial sector.
The OECD expects the mainland to bolster reform efforts, which have brought reductions in overcapacity, debt write-offs and debt-for-equity swaps at large state-owned enterprises (SOEs).
It cautioned that continued macroeconomic growth depended on the reform programme being consistently implemented over a sustained period.
'Despite the progress made so far, the SOE sector continues to be plagued by a range of problems and the performance of non-state enterprises has also deteriorated substantially.' Any delays would further pressure government debt levels, which although at less than 20 per cent of GDP, could rapidly expand as Beijing attempts to tackle non-performing loans at state banks.
In Hong Kong, real GDP is expected to improve, rising from 2.9 per cent last year to 5.2 per cent this year and 5.5 per cent next year.