China to see moderate recovery in 2013: economist

The Chinese economy, which suffered a slowdown this year, won't head for a hard-landing, and recent economic indicators showed that China was already on a moderate recovery path, UBS China economist Tao Wang said here on Thursday.

"For 2013, we label it a year of recovery.... Our forecast is that China's GDP growth will go up from about 7.6 percent this year to about 8 percent next year. The recovery will be mainly driven by some cynical recovery as well as government policies," she told reporters on a call-in media conference.

Wang said three important domestic factors -- increasing infrastructure spending, a moderate recovery in the property market and the end of de-stocking -- will help sustain economic growth and push growth slightly higher next year than this year.

She expected government policy support, which has been in place since the spring of this year, will continue to play its role. That is reflected by increasing infrastructure spending, which has been supported by increase credit into the economy.

"Over the last few months, the credit growth as well as infrastructure investment growth have both speeded up. In our view, this kind of recovery will continue and help infrastructure investment to be sustained next year," she said.

The second reason for the recovery is a rebound in the property sector in China, she said. The Chinese government, since two years ago, has tightened the policies on the property sector with home purchase restrictions and higher down-payment requirement for mortgage.

Since the beginning of this year, the approval of the homebuyers' first mortgage has been eased. Mortgage rates have been lowered a couple of times.

Though the restriction was still in the place, yet the market sentiment has been improving since this spring, Wang observed. Sales in the property, especially in residential, improved since April or May this year. "We consider the property sector the most important sector in the Chinese economy. The recovery in the property market laid the ground for the overall recovery in China. "

The third reason for the recovery is the end of the de-stocking. There were many reports of excessive capacity and the buildup of inventory in many sectors earlier this year. But as some sectors began to recover, the de-stocking momentum has faded and the de- stocking will probably end next year, she said.

Wang also said the improvement of Chinese export in the last two or three months is unlikely to continue given the uncertainties remaining in the Euro-zone and in the U.S. regarding the fiscal cliff.

"So, in other words, the recovery in China is not going to be an export-led recovery, but mainly a domestically-led recovery."

As to the inflation, Wang expected inflation to pick up from the fourth quarter this year, and rising inflation is mainly driven by another food cycle and rising prices of commodities and grain. She also predicted that the Chinese government will continue pushing forward some of the price reform, in such areas as utilities.

"So we expect CPI inflation to average at about 3.5 percent next year, compared to 2.7 percent this year," she said.

Wang also believed that there would be no more interest rate cut in the coming year. "If anything, we see a risk of possible interest rate hike in the second half of 2013, as inflation rises above 3.5 percent. The benchmark deposit rate right now is at 3 percent, so if the inflation rise above 3.5 percent, there would be a risk for interest rate increase," she added.