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China Will Offer Big Growth Surprise: Goldman

China will offer a big surprise in growth, as it is still a vastly underappreciated story, Jim O’Neill, Head of Global Economic Research at Goldman Sachs told “Worldwide Exchange” Thursday.

Goldman Sachs upgraded its growth forecasts for China for 2009 and 2010 to 8.3 percent and 10.9 percent, from 6 percent and 9 percent respectively.

The world’s third largest economy will expand faster than previously expected, as Beijing’s recent 4 trillion yuan ($588 billion) stimulus package will boost domestic demand and investment, according to Goldman.

The balance of the world was already shifting, but the financial crisis has accelerated it and China’s response to it has been fantastic, O’Neill said, adding that China is the only country to have some of the kind of influence the US had in the last 20 years.

It is very likely that China will overtake Japan to become the second-largest economy in the world, O'Neill also projected.

While investors around the world have voiced concern about China’s non-performing loans, that is only a minor part of the story, O’Neill said.

The degree of loan expansion is dramatic, but it is helping China’s next phase of development to be led by its own domestic demand, he added.

China is shifting from export based growth to a future of more domestic based growth, according to O'Neill; this will also be "hugely important" for neighboring Asia and, while it cannot solve all of the world’s problems, it will help contribute to the recovery, he added.

For investors, this means focusing on China-related stocks, specifically in Chinese consumer linked investments.

— Written by Noelle Murbach-Lami