China overcapacity to be exposed by year end - Lehman

BEIJING (XFN-ASIA) - Overcapacity is likely to show up in the Chinese economy by the end of this year, with short-term factors like the Olympic Games unable to stimulate domestic consumption, said Sun Mingchun, economist with Lehman Brothers. In a note to investors, Sun said that growth in the fourth quarter of this year was likely to fall to below 9 pct, with the global slowdown set to hit China s industrial firms. The fall in exports will bring GDP growth down to 9.5 pct for the whole year, he said. However, it will not lead to a change in China s trade balance, with imports also set to fall, Sun said. The storms that hit southern and central China over the last month are likely to cut Q1 GDP growth to 9.2 pct, and while reconstruction work will push growth back to 10.5 pct in the second quarter, the economy will slow again in the second half of the year, he said. The fillip provided by the Olympic Games in August is unlikely to be significant, Sun said. Inflation is expected to rise to 7.2 pct year on year in the first quarter, and then decline sharply in the second half of the year, Sun said. The Chinese government said at the weekend that more than a sixth of China s total arable land was affected by the bad weather, and that persistent droughts were also hitting agricultural output. Official news agency Xinhua, citing analysts, said that inflationary pressures would remain in the next few months, and that soaring food prices could spill over into other sectors. Lehman has revised its estimate for annual inflation to 4.4 pct from 3.8 pct, but said that China would not raise interest rates again this year. david.stanway@xinhuafinance.comMMMM