China growth eases, mild 2008 slowdown seen

China expects a mild slowdown in growth this year, the head of the National Bureau of Statistics said on Thursday after reporting that annual GDP growth eased to 11.2 percent in the fourth quarter of 2007 from 11.5 percent in the third.

Following are research reports on the GDP report.

HONG LIANG AND YU SONG AT GOLDMAN SACHS IN HONG KONG:

"On a quarter-on-quarter basis, GDP growth softened to 2.0 percent from 2.2 percent in 3Q. The softening was mainly driven by slower growth in trade surpluses, which decelerated to 12.2 percent yoy in 4Q from 50.2 percent yoy in 3Q. Domestic demand appeared to be the main driver for growth in 4Q, while the contribution from net exports decelerated significantly."

They said inventory investment may have accelerated and credit tightening may lead to a softening in domestic investment demand in the coming months.

"We believe the underlying inflationary pressures remain significant and risks remain high that CPI inflation will rebound in the coming months.

"We believe the government is likely to maintain its tightening stance until they see clear signs of a softening in the underlying inflationary pressures. We expect this package to include strict orders from the central bank for commercial banks to abide by the lending target (3.6 trillion yuan in new loans for the whole year and no more than 35 percent of the annual target in 1Q2008), moderate appreciation of the CNY (we expect 10 percent USD/CNY appreciation in 12-months' time), further withdrawals of liquidity via open market operations and regular hikes to the reserve requirement ratio.

"Anecdotal evidence suggests at least some commercial banks have already extended significant amounts of loans in the first few weeks of the year. This could pose further upward inflation risks and further policy tightening risks."

ANDREW FERRIS WITH BNP PARIBAS IN HONG KONG:

"The numbers are still, of course, strong but if they are the start of a trend then they are encouraging. However, in no way will the authorities loosen or relax, and indeed statements to the effect that monetary policy will stay tight were also issued.

"As the FAI did decelerate and CPI was also down, the PBOC may hold back a rate hike for this weekend, given also the equity markets situation. However the authorities may wish to see FAI clearly down towards 20 percent before they can relax.

"We stay with our forecast for four 27bps rate hikes in 2008, possibly one each for every quarter."

On GDP: "The trend here is encouraging. We are looking for 10.8 percent for the whole of 2008."

On CPI: November was effectively the peak. Expects 3.5 percent year-average rise in 2008.