However, the bank does not see yet a sustainable recovery, despite the state’s Rmb4,000bn ($590bn, ?420bn, £365bn) fiscal stimulus, adding that Beijing might have little room for additional measures this year.

Growth would be strongly supported this year, but “there are limits to how much and how long China’s growth can diverge from global growth based on government-influenced spending”, said Ardo Hansson, the bank’s lead economist for China. “It is too early to say a robust, sustained recovery is on the way.”

The bank also predicts that China’s fiscal deficit will climb to almost 5 per cent of GDP this year, well above the 3 per cent budgeted by Beijing, due to falling government revenues and rapidly rising expenditures. This year?s fiscal deficit is a large jump from last year’s deficit of 0.4 per cent.

“On current projections, it is not necessary, and probably not appropriate, to add more traditional stimulus in 2009,” said Louis Kuijs, senior economist and main author of the quarterly update released yesterday. “One reason is that the fiscal deficit is on course to be significantly higher than budgeted this year and additional stimulus now would reduce the room for stimulus in 2010.”

Market-based investment and consumption are unlikely to rebound until the rest of the world starts to recover convincingly and the collapse in Chinese exports is reversed. Chinese exports fell by about a quarter in the first five months of the year from the same period a year earlier.

China’s economy grew 6.1 per cent year-on-year in the first quarter, faster than any other leading country but below the official full-year 8 per cent target. The World Bank said it expected the economy to grow 7.7 per cent in 2010, much slower than the 13 per cent in 2007 and 9 per cent last year.

Source : Konaxis