Inflation rise 'on the horizon'

GDP growth to remain the same but prices may go up: think tank

Growth levels will remain about the same in 2013 but inflation is likely to rebound moderately, according to economists at the government's leading think tank.

GDP growth will stay at 2012 levels, about 7.8 percent, and the Consumer Price Index, a main gauge of inflation, may go up from 2.6 percent in 2012 to 4 percent, said Yu Bin, the director of macroeconomic research at the State Council Development Research Center.

Fixed-asset investment, which is seen as the most powerful driver of the world's second-largest economy, may continue to face downward pressure, amid restrictions on raising property prices.

The National Bureau of Statistics reported on Friday that GDP growth was 7.8 percent in 2012, a 13-year low. It registered 9.3 percent in 2011.

"We should not be too optimistic about the economic situation in 2013, although growth rebounded in the final quarter last year to 7.9 percent from the 14-quarter low of 7.4 percent during July to September," Yu said.

The two biggest areas of fixed-asset investment, manufacturing and infrastructure, both registered declines.

Investment in manufacturing, which accounts for 35 percent of fixed-asset investment, slowed to 22 percent in 2012 from 31.8 percent in 2011, the NBS reported.

Infrastructure investment, 25 percent of fixed-asset investment, shrank to 15.6 percent by the end of December 2012 from 16.2 percent in the first 11 months. Meanwhile, growth in property investment edged lower to 16.2 percent during the past year, against 16.7 percent from January to November.

Consumption will finally replace investment and exports to become the main driving force of China's growth, although it will take "quite a long time", he said.

Rising costs will hit investment, Feng Fei, also a researcher from the center, said.

"Investment is no longer an efficient way to boost GDP in China as the cost is rising and the potential risks in the financial system are accumulating fast."

According to economists, GDP over the next decade is not likely to regain double-digit growth, Feng said, as both exports and investment may continue to see downside risks.

Long Guoqiang, director of the Research Department of Foreign Economic Relations at the center, predicted that the global economy may be better this year than in 2012, which will lead to a rise in exports to 10 percent year-on-year, compared with 7.9 percent last year.

"The changing exchange rate and increasing production costs will further weaken Chinese companies' competitiveness," said Long.

The debt ceiling debate in the United States and headwinds from the eurozone may restrain global demand and inflation could be imported as other economies ease their monetary polices, he said.

China's new leadership has pledged to focus more on the quality of development, addressing urbanization and modern agriculture as key reform areas.

Huang Yiping, chief China economist with Barclay's Capital, said that "the rebalancing of the Chinese economy is already underway".

According to the NBS data, consumption has become the largest force behind 2012 growth. It contributed 51.8 percent of the GDP increase last year, compared with 50.4 percent from capital investment.

Exports pulled down GDP growth by 2.2 percent in 2012.

However, China will take a long time to finally achieve the "new balance", Yu said as he stressed that it is unlikely the government will ease property curbs.

A report from Barclay's Capital predicted that 2013 GDP growth is likely to rebound to 8 percent, sustained by new investment projects, robust consumption and stabilizing exports.

"But we remain cautious about China's recovery given our belief that rising financial and fiscal risks, plus a pickup in inflation, will act as constraints against further policy easing," the report said.