ADB raises China 2013 growth forecast

The Asian Development Bank (ADB) has revised its forecast for China's 2013 economic growth from 8.1 percent to 8.2 percent while stressing downside risks.

Buoyed by strong consumer spending and fiscal expenditure, China's economic growth is expected to rebound from the 13-year low of 7.8 percent in 2012 to 8.2 percent this year, according to an ADB report released on Tuesday. The Chinese economy will maintain its recovering momentum in the first half of 2013, and its economic growth will stabilize in the second half as the effects of last year's stimulus package sink in, said Hamid L. Sharif, country director for ADB's Resident Mission in China.

Government measures taken to alleviate environmental pressures and narrow income gaps will restrain the growth from rising further, the bank said, forecasting an economic growth of 8 percent for China in 2014.

The report, titled Asian Development Outlook 2013, also noted that the sluggish global economy, the impact of Europe's frail economy on Chinese exports, renewed domestic inflationary pressure, as well as local government debt, will pose downside risks for China's economic outlook.

Fiscal and taxation reform, according to the ADB, stands as the most crucial and challenging reform to be addressed by the Chinese government in the next couple of years.

The government should further expand social expenditure, including education and pensions, to reduce the long-term savings of Chinese families and unleash their consumption potential, said Niny Khor, economist with ADB's Resident Mission in China.

The Chinese government's expenditure on education and healthcare amounts to only 5.5 percent of its total gross domestic product, much lower than the average of 12.5 percent for countries in the Organization for Economic Co-operation and Development, according to the report.

Asian Development Outlook 2013 also said China should push forward the reform of property tax, which would become a stable source of tax revenues for local governments.

Warning against inflationary pressures, the ADB forecast the growth of China's consumer price index will rebound to about 3.2 percent in 2013, lower than the government target of 3.5 percent. Rising labor costs and food prices are likely to push inflation up to 3.5 percent in 2014, the bank added.