China GDP Growth May Quicken to 10% by Year End, Nomura Says

By Li Yanping

April 3 (Bloomberg) -- China’s economy may grow as much as 10 percent by the final quarter of this year as the government’s 4 trillion stimulus package ($585 billion) takes effect, Nomura Holdings Inc. said.

“An investment boom led by the government’s stimulus package and a very low growth rate in the fourth quarter of 2008 may push growth to rebound to around 10 percent” by the fourth quarter of 2009, Sun Mingchun, an economist at Nomura in Hong Kong, said yesterday. The economy grew 6.8 percent in the fourth quarter of 2008.

China’s Purchasing Manager’s Index rose above 50 in March for the first time in six months, a report showed yesterday, indicating that the nation’s manufacturing industry is expanding. President Hu Jintao said before leaving for the Group of 20 leaders meeting in London this week that his spending program had “begun to take effect.”

Ha Jiming, chief economist at China International Capital Corp. in Hong Kong, yesterday raised his forecast for China’s growth this year to as much as 8 percent from a previous estimate of 7.3 percent. He cited strong loan growth and the recovery in indicators such as power output, new project investment and car sales.

China’s spending plan will fund the building of railways, airports, power grids, bridges and social housing.

The government has also pressured banks to step up lending. New loans reached 1.3 trillion yuan ($190 billion) in March, the China Securities Journal reported today, bringing new loans for the quarter to 4 trillion yuan, three times the amount extended for the same period last year.

Incentives Unleashed

“After the central government curbed investment for years on fear of overheating, local government’s incentive to expand projects is finally unleashed along with the stimulus package,” Nomura’s Sun said.

Urban fixed-asset investment jumped 26.5 percent in the first two months from a year earlier, while vehicles sales climbed 25 percent in February. China’s economy may expand by 7.5 percent between April and June and growth may accelerate in the following months, Sun said.

China’s economy is responding to the government’s stimulus plan with investment spending this year “exceeding all expectations,” the Asian Development Bank said this week.

Huaneng Power International Inc., China’s biggest electricity generator, plans to boost capital spending by 18 percent this year to expand capacity, Zhou Hui, the company’s chief accountant, said in Hong Kong yesterday.

Qingdao port, the nation’s third-largest container port, saw throughput increase 4.5 percent in the first quarter from a year earlier, state media reported yesterday.

Purchasing Managers’ Index

The Purchasing Manager’s Index rose to a seasonally adjusted 52.4 in March from 49 in February, the Federation of Logistics and Purchasing said yesterday, bringing forward its publication from tomorrow.

“The timing may also have been intended to back up the argument officials were keen to make in the run-up to the G-20 meeting that China has responded better than most to the crisis and is well-placed for an early recovery,” said Mark Williams, an economist at Capital Economics in London.

Williams said though there are signs of growth, China’s expansion may be “tepid,” held back by slumping exports and slowing retail spending growth as unemployment climbs.

Exports sank at a record 25.7 percent pace in February, retail-sales growth slowed to 15.2 percent in January and February combined from 19 percent in December and the government estimates at least 20 million migrant workers have lost their jobs. Industrial company’s profits fell 37 percent in the first two months of the year.

To contact the reporters on this story: Li Yanping in Beijing at yli16@bloomberg.net