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China's share of global growth to soar

SHANGHAI / BEIJING - Bloomberg | 11/2/2010 12:00:00 AM |

China may account for a record 30 percent of global growth over the next decade even as the nation’s economy expands at a slower pace, an UBS analyst says.

China may account for a record 30 percent of global growth over the next decade even as the nation’s economy expands at a slower pace, UBS said.

That would compare with a 12 percent share between 1998 and 2008, Beijing-based economist Wang Tao said in an e-mailed report dated Monday, citing the International Monetary Fund, or IMF, for the historic data.

China’s expansion may cool because of smaller increases in investment and the labor force and as productivity gains become harder to secure, Wang said. At the same time, the increasing heft of the economy, the world’s second biggest in the second quarter of this year, means it will account for a larger share of global expansion, she said.

Lou Jiwei, the chairman of China Investment Corp., the nation’s sovereign wealth fund, said Monday that China may experience a “big drop” in the pace of growth in the next three to four years as more of the population retires.

For the 15 years through 2009, China’s economy expanded by an average of 9.9 percent a year, according to government data. Wang, head of China economic research at UBS, sees “trend growth” slowing to an average of 7.8 percent for the decade from 2011 to 2020.

The world can continue to expand at a pace of between 3 percent and 3.5 percent, “mainly because China and other emerging market economies, the faster growers, will account for an increasingly large share of the world economy,” she said.

UBS projects that China’s gross domestic product will expand by about 9 percent in 2011 and 2012.

[HH] Stock rally to continue

Meanwhile, according to an analysis by a Citigroup economist, China’s stocks will extend a rally as a rising yuan and U.S. monetary stimulus attract inflows and a clampdown on property speculation drives savings into equities.

“Though choppy in the near-term, the liquidity-driven rally will likely carry on in the next six months,” according to Citigroup analysts led by Minggao Shen in a report. The brokerage raised its year-end estimates for the Shanghai A-Share Stock Price Index, the CSI 300 Index and the Hang Seng China Enterprises Index to reflect “strong momentum.”

The Shanghai Composite Index climbed 12 percent in October, the most since July 2009 and second-biggest gain among 88 global stock gauges tracked by Bloomberg.

A faster appreciation in the yuan against the dollar and a widening gap in interest rates between China and the U.S. and Japan will attract more fund inflows, benefiting the equity market, according to Citigroup.

China’s central bank on Oct. 19 raised rates for the first time since 2007. The benchmark one-year lending rate was increased by a quarter of a percentage point on Oct. 19 to 5.56 percent and the deposit rate by the same amount, to 2.5 percent.

The Shanghai Composite rebounded last month as commodity producers rallied on speculation U.S. asset purchases will boost inflation. The measure remains down 6.8 percent this year after government raised bank reserve requirements and curbed lending growth to avert asset bubbles.

[HH] New round of stimulus

The U.S. Federal Reserve will probably begin a new round of monetary stimulus this week by announcing a plan to buy at least $500 billion of long-term securities.

Citigroup joins Goldman Sachs Group and BNP Paribas in predicting Chinese stocks will extend gains. The CSI 300 Index, which tracks the 300 biggest Chinese companies traded in Shanghai and Shenzhen, may rise to 4,300 by next year, Goldman Sachs analysts led by Helen Zhu wrote in a note on Monday.

“The market is only going to go up from here,” Erwin Sanft, head of China and Hong Kong research at BNP, said Monday in a Bloomberg Television interview. Operating cashflows rose 45 percent in the third quarter from a year earlier, he said.

Citigroup boosted its year-end forecast for the Shanghai A-Share index to between 3,300 and 3,500, compared with the previous estimate of 2,800 to 3,100. The CSI 300 may rally to 3,600 to 3,800, from the previous estimate of 2,900 to 3,100.

The Hang Seng China, which tracks Hong Kong-traded Chinese companies, may rise to 13,800 to 14,500 by the end of 2010, Citigroup said. The brokerage previously forecast 12,000 to 13,000 for the index.

Citigroup increased its rating on China’s banks to “neutral” and lowered the recommendation on the property and phone industries to “underweight,” according to the report.

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