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China's GDP may expand 11.4% in the first quarter from a year ago, the fastest pace in more than a decade, riding the tailwind from pro-growth measures introduced to counter the pandemic's impact and necessitating greater policy focus on preventing asset bubbles, a prominent advisor to the government told MNI.
The economic recovery will be bolstered by confidence that supportive policies remain, while exports and investments are expected to perform well, said Liu Yuanchun, vice dean of the Renmin University of China and an appointed advisor to the State Council, in an interview. China's growth expectations have also benefited from the base effect - the economy contracted 6.8% in the first quarter of 2020.
The authorities should now try to maintain expansionary policy while dealing with mounting debt, Liu said. Some stimulus measures will have to be withdrawn to avoid inflating asset prices but the process must be carefully handled, Liu said.
He expects special anti-pandemic government bonds to be discontinued and some bailout measures, such as fiscal subsidies and preferential low interest rates for companies, to end.
China reported better-than-expected growth of 2.3% for 2020 and 6.5% growth for Q4, driven by robust industrial production, which rose 2.8% although consumption remained sluggish, shrinking 3.9%.
Rising fiscal revenue, companies' profits and incomes are signs that the domestic economy is stronger, although GDP growth could slow to 5.4% in Q4 as the base effect fades, Liu said.
The year, which starts a new five-year plan, will see the implementation of the government's new dual circulation strategy as well as market-reform policies that can support short-term growth and build long-term confidence, Liu said.
Investment will be an obvious driver as the government aims to expand domestic demand, support science and technological innovation, and strengthen the industrial chain, said Liu. However, consumption, which is recovering at the margins, will need longer to catch up as related structural reform will take time, Liu said.
Exports may remain strong this year as overseas markets, still mired in the pandemic, continue to rely on Chinese goods but Liu said a big jump in shipments as in 2020 is unlikely.
Liu expects money supply and loan growth in line with nominal GDP. He forecast M2 to rise by 10.2% from last year's 10.1% while total social finance would slow to 10.1% from 13.3%. Inflation may register 1.8% and producer prices may shrink to -1.5%, he said.
Structural policies that have proved effective, including those supporting small businesses, will become regular tools while more innovative measures will be introduced to support major projects as a result of the new strategy, he said.According to Liu, the current real interest rate is appropriate for growth, though the challenge of directing funding to the economy remains.