The economy may expand at the slowest rate in a decade in 2012

BEIJING - The Chinese economy may register its slowest pace of growth in a decade in 2012, but the country's macroeconomic policies are likely to remain stable next year, said central bank adviser Li Daokui on Friday.

Li said the GDP growth rate of the world's second-largest economy could be around 9.2 percent this year, before slowing to 8.5 percent in 2012. Last year, China reported a GDP growth rate of 10.4 percent.

"Considering the economic turbulence in developed countries and its (China's) own urgent task of restructuring its growth pattern, an economic slowdown (in China) is inevitable," said Li, an academic adviser to the People's Bank of China.

Li made his remarks at the China Finance Annual Forum 2011 of the 7th Beijing International Finance Expo.

Although China's Consumer Price Index (CPI), a main gauge of inflation, may moderate to 2.8 percent as the pressure from food and grain prices eases next year, the government's macroeconomic policies, especially the monetary stance, will probably remain stable.

"It won't be eased as business owners have wished. There could be some minor adjustments, but liquidity will remain somewhat tight," Li said.

Analysts and business owners had expected China to reverse the monetary-tightening policies after CPI eased to 6.1 percent year-on-year in September from the more than three-year high of 6.5 percent in July, and the official Purchasing Managers' Index (PMI), a key gauge of manufacturing activity, fell to 50.4 in October from 51.2 in September.

Credit policy could start to loosen in the fourth quarter, with new yuan lending totaling almost 7.5 trillion yuan ($1.17 trillion) in 2011, according to a report in the China Securities Journal citing an anonymous banking industry source.

Liquidity conditions have improved recently, said Zhang Zhiwei, Nomura Holdings Inc's chief economist for China, noting that the discount rate for six-month bills has fallen to 5.8 percent from a peak of 11 percent in late September. Moreover, the seven-day repo rate also dropped to 3.71 percent on November 2 from 5.08 percent on Sept 29.

"The combination of a protracted euro debt crisis, weaker-than-expected PMI, and a possible property market slump has set the scene for aggressive policy easing. We think that China will soon reverse the tight monetary policy stance that's been in place since February 2010," said Liu Ligang, head of Greater China economics at ANZ Banking Group.

Liu predicted a 50 basis-point cut to the reserve-requirement ratio for all lenders, and a possible 100 basis-point cut for small banks.

"Outright policy easing, together with current measures to lower the tax and regulatory burdens on small and medium-sized enterprises, will substantially reduce the risk of a significant economic slowdown in the first half of 2012, and consolidate a soft landing in the fourth quarter of 2011," said Liu.

On Friday, Yao Jingyuan, former chief economist at the National Bureau of Statistics, said that, although the economy faces downward risks, China needs to remain cautious if its growth rate remains high, a scenario that could worsen inflation and affect economic restructuring. The country has set a target for annual economic growth at 7 percent on average between 2011 and 2015.