Winter 2011
Summary: 1. GDP Growth Above 8% - Probability: 90%, Faster Investment Growth than in 2011 - Probability: 90%, Moderate Inflation - Probability: 80%


GDP Growth Exceeds 8% - Probability: 90%
Sun Jianfang (孙建芳)

[The EO Quarterly was published before Wen Jiabao’s speech at National People’s Congress in Beijing, where he set China’s growth target for 2012 at 7.5 percent]

Economists’ concerns for China’s growth rate center on fear for the country’s export markets and its real estate industry.

Most of the economists surveyed by the EO expect exports to weaken this year.

Investment Grows Faster than in 2011 -
Probability: 90%

Zhang Xiangdong (张向东)



The central government has already sent a clear signal for local governments to increase the size of investment.

Firstly, the central government has increased investments from the budget by about 20 billion yuan, and, although this is a small sum when measured on the scale of government spending, those funds could boost investment across the country by as much a trillion yuan.

Secondly, road and rail project that were suspended in the second half of 2011 will be resumed this year and total rail investment will be higher than last year.

Finally, despite a reduction in the number of new homes starts planned under the government-subsidized plan – construction will start on 3 million such homes in 2012, compared to 10 million in 2011 – work is still in progress on 14 million homes that were partially built at the beginning of the year.

This year will mark a change in government; typically this means that investment by local governments surges. Accordingly, although policy makers are planning for lower GDP growth, investment growth is likely to exceed its level from last year.

Inflation Isn’t a Concern - Probability 80%
Zhang Xiangdong (
Whereas “price control” was the central government’s primary goal in 2011, this year the priority is to maintain growth. This reflects shows the government’s confidence that inflation is under control.

NDRC director Zhang Ping (张平) said last December that the price regulation policy needs to be improved and inflationary factors remain.

Progress will be Made on Tax Reform – Probability 80%
Xi Si (席斯)
Last December finance minister Xie Xuren said that property tax pilots will be extended this year, and progress will be made with the policy of substituting value added tax for company tax.

Chongqing and Shanghai have been piloting the property tax for a year, although Beijing and Shenzhen, which had also been on the list of test cities, haven’t yet introduced the levy. Chongqing has only collected 100 million yuan from the tax.

A person familiar with the issue told the EO that one or two more cities are likely to be included into the pilot program this year.

Exports will Continue to Fall – Probability 90%
Zhang Bin (张斌
Most businesses expect that this year exports will either decline or flatline, as economies in Europe and the U.S. remain weak.

The rising wages of Chinese workers, the yuan’s appreciation and more expensive raw materials are also paring down the country’s competitive advantage in some manufacturing sectors.

A-Share Market Will Make Back Loses, but Remain Volatile - Probability 60%
Zhao Juan (赵娟)
As the central bank sticks to its so-called “prudent” monetary policy, many investors expect the A-share market to perform better this year than in 2011, when it feel sharply

“We expect that the main theme on the A-share market will be a recovery from [last year’s] slump, but [we] expected that rise to be fairly slow,” said Yang Delong, a fund manager at China Southern Fund (

Slow Yuan Appreciation – Probability 80%
Ouyang Xiaohong (
Experts think there’s less room of the yuan to appreciate in 2012, with average forecasts of a 3 percent rise against the dollar.

The RMB exchange rate is expected to be around 6.12 in 2012,” China Merchants Securities said.

Economists Say No Hard Landing
page 43-47
By Li Xiaodan ( 李晓丹)
~57 percent of economists believe CPI will rise three to four percent in the first quarter of 2012
~72 percent of them believe that the rate of GDP growth will be between eight and nine percent over the same period.
~91 percent of those polled say that loans will grow steadily in the first quarter and 68 percent forecast that loans will grow at between seven and eight percent.
~ As to housing policy in the first quarter, 77 percent of economists say there won't be any change; 14 percent of them believe the policy won't be relaxed but there will be some adjustment; six percent think the policy will be tightened and only three percent of them think it will be relaxed.
~ The survey is conducted by the Economic Observer every quarter. Economists responding the survey include those working in investment banks, research institutions and government departments. 
Original article: [Chinese]







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