GDP growth may drive up prices and cut trade surplus

The rebound in China's economic growth is likely to have driven up the GDP growth rate to 7.7 percent in 2012 and it will be higher than 8 percent this year, stoking expectations of inflation and a shrinking trade surplus, a top government think tank said on Monday.

"This rebound impetus may remain until the fourth quarter according to leading economic indicators that showed a recovery in domestic investment, especially in infrastructure construction and the property market," said Zhang Yongjun, an economist with the China Center for International Economic Exchanges.

A stronger price increase trend may appear in the coming months in response to expanding domestic demand, raising the consumer price index to as much as 4 percent year-on-year in 2013, up from 2.6 percent in 2012, Zhang said.

Crdit Agricole Corporate and Investment Bank released a report on Monday that said that the eurozone economy is likely to remain weak this year.

"Major central banks are expected to maintain and expand quantitative easing while the European Central Bank lowers policy interest rates."

Zhang said: "Excessive market liquidity will lift up global commodity prices and will add to inflationary pressure in China in the short term."

Another potential risk for China stems mainly from a lack of investment funds, according to Zhang. The addition of capital sources is still not matching the increase in investment, which requires stronger fiscal support and broader financial channels.

The bureau plans to release the GDP growth rate for the past three months and the whole of 2012 on Friday.

Underpinned by accommodative monetary and fiscal policies, China's GDP growth is likely to rebound to 8 percent year-on-year in the fourth quarter of 2012, up from the 14-quarter low of 7.4 percent seen during the July-to-September period, said Wendy Chen, an economist with Nomura International (HK) Ltd.

This rebound is supported by a modest improvement in exports and inventory destocking is coming to an end, according to Chen.

Nomura predicted the industrial output growth rate may climb to 10.6 percent in December from 10.1 percent in November. Fixed-asset investment is likely to rise to 20.8 percent year-on-year in December compared with November's 20.7 percent.

In addition, retail sales may have increased by 15.6 percent in December, up from November's 14.9 percent, the Japanese securities company said.

Ma Jun, chief economist at Deutsche Bank in China, said the nation's GDP growth will recover modestly to 8 percent in the first half of 2013 and accelerate to 8.5 percent in the second half, benefiting from corporate and infrastructure investment and a recovery in export growth in the second half of this year.

Ma said the economic recovery will continue in 2014 and GDP growth will likely peak at close to 9 percent.

"Indications of more extensive economic reforms ahead will be fruitful, and we expect investment-led growth recovery in 2013," he added.

Regarding monetary policy, Deutsche Bank's expectation is that interest rates may begin to rise by the end of 2013, and that renminbi appreciation against the dollar will reach 2.5 percent by the end of the year.

Ma also outlined structural themes that investors should consider in 2013. For example, cement, construction, and shipping companies will likely outperform other companies, as 2013's cyclical recovery will mainly be led by investments and exports.

Resource price reforms may be carried out, and the power, gas, water and refined oil sectors will be the main beneficiaries of such initiatives, he said.

"The downside risks include a stalemate on the US debt ceiling, geopolitical risks in the Middle East and an escalation in tensions between China and Japan. The main upside risk in China is higher-than-expected fiscal spending by the government," said Ma.