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Inflation Will Crimp China’s Growth to 8.5% in 2012: Expert

Tuesday, 18 Oct 2011 | 4:49 AM ET

China’s GDP grew at a lower-than-expected 9.1 percent in the third quarter of 2011, prompting one analyst to turn cautious about the future growth prospects of the world’s second-largest economy that continues to battle surging inflation.

Citizens purchase goods at a supermarket in Beijing, China.
Chinafotopress | Getty Images AsiaPac
Citizens purchase goods at a supermarket in Beijing, China.

“We expect inflation to be serious and that’s going to continue to crimp GDP growth,” Shaun Rein, Managing Director at China Market Research Group, told CNBC.

Inflation will stay around 5.5 percent in the first half of 2012, according to Rein, who anticipates a further slowdown in China’s growth to 8.5 percent next year.

Going forward, Rein says many companies will see their margins getting squeezed and are “about to transfer higher prices onto consumers.”

About 80 percent of consumer product companies that Rein’s research firm interviewed last month, expect to increase prices between 10 and 15 percent after January, which could fuel inflation.

In September, China’s consumer inflation dipped to 6.1 percent, after hitting a three-year peak of 6.5 percent in July.

According to Mark Matthews, Head of Research Asia at Bank Julius Baer, the third quarter GDP number is in line with the Chinese government’s plan to slow the economy.

“I think the government wants to slow things down,” said Matthews. “They've been wanting to slow things down for about a year now to combat inflation, and so probably a weaker number would be a little better than a stronger number.”

China’s GDP growth came in a touch lower than 9.2 percent, which the market had forecast, and also lower than the 9.5 percent recorded in the previous quarter.

But Alastair Thornton, China Analyst at consulting firm IHS Global Insight, says despite growth easing, China is not at risk of a hard landing.

“Domestically, aggressive monetary tightening enacted through the year has dragged GDP growth down… But growth still remains quite robust and China will be able to comfortably deliver over 9 percent this year,” Thornton said.