Deutsche Raises China Growth Forecast

China's economy will expand about 10.7percent this year, Deutsche Bank said, increasing its estimate toaccount for reconstruction spending following the worst earthquakein 58 years. Deutsche Bank raised its 2008 economic growth forecast from 10percent and estimated 2009 expansion of 9.7 percent from 9.3percent previously. Spending to rebuild will exceed 500 billionyuan ($72 billion) over three years, Ma Jun , a Hong Kong-based economist wrote in a note dated yesterday. Spending will peak from the fourth quarter of this year to thesecond quarter of next year, boosting demand for cement, glass,machinery and steel, Ma said. The revisions were consistent withboosts to growth after earthquakes in India, Indonesia, Iran,Japan, Taiwan, Turkey and Pakistan, he said. The spending would provide support for companies including Asia Cement Corp. , Shui On Construction Machinery China Infrastructure Machinery Holdings Ltd. , Yanzhou Coal Mining Co., Maanshan Iron & Steel Co., DoosanInfracore Co. and Hitachi Construction Machinery Co., Ma said. China's cement demand will rise by 61.1 percent in the yearstarting July 1 from the previous 12 months because of thereconstruction, compared with a previous estimate of 12 percent,according to the report. Demand for construction glass will rise by 39.2 percent for thesame period, compared with the previous forecast of 18 percent, andsteel demand will rise by 14.3 percent, compared with 12 percent,Deutsche Bank said. Reconstruction Spending Reconstruction spending will begin boosting economic growth in thefourth quarter of this year, when it will add 1.4 percentagepoints, Ma said in a telephone interview. It will add 1.2percentage points in the first half of next year, he added. Rising demand prompted Ma to revise his 2009 inflation forecast to 4.7 percent from 4.3 percent, he said. Fixed-assetinvestment will be boosted by 3 percentage points over the ninemonths from October through June next year, he said. Ma left his forecast for consumer price rises this year unchangedat 7.2 percent, adding earthquake rebuilding would cause ``highinflation for longer.'' Consumer prices will fall 1 percentagepoint to 7.5 percent in May and another half a percent to 7 percentin June as vegetable prices fall after recovering from snowstormsearly this year, he said. China faces inflation close to a 12-year high and weakening globaldemand for exports. The People's Bank of China said yesterday itregards the danger from rising prices, a problem exacerbated by thequake, as the bigger threat. In the second half of next year, economic growth likely willdecelerate ``sharper than expected as fixed asset investment growthpeaks,'' Ma said. After seven earlier earthquakes in India,Indonesia, Iran, Japan, Taiwan, Turkey and Pakistan, GDP growthfell by 2.5 percentage points in the second year after the quake,Ma said. The government has set up a 70 billion yuan fund to pay forreconstruction costs in areas affected by the quake. To contact the reporters for this story: Helen Yuan in Shanghai at hyuan@bloomberg.net Kevin Hamlin in Beijing at khamlin@bloomberg.net Last Updated: June 3, 2008 03:31 EDT