China's economy is forecast to expand by 9.8 percent in 2008, with consumer prices rising 6.3 percent, which would represent a further retreat from 9.9 percent and 4.5 percent respectively in the first three quarters, the State Information Center (SIC) said.

In a report published in the official China Securities Journal, the think tank said it expects the producer price index (PPI) to rise 7.8 percent this year as procurement prices for raw materials, fuel and power rise 12 percent.

Residents in Yichang, central Hubei province buy fruit at a supermarket August 12, 2008. China's economy is forecast to expand by 9.8 percent in 2008, with consumer prices rising 6.3 percent, the State Information Center (SIC) said. [Asianewsphoto]

Overall fixed-asset investment (FAI) this year is expected to rise by 26.5 percent to 17.3607 trillion yuan, while urban FAI is expected to rise by 27.5 percent to 14.9703 trillion yuan ($2.19 trillion).

FAI for real estate is seen rising by 25 percent year-on-year to 3.16 trillion yuan, the SIC said.

Industrial value-added output is projected to rise 14.8 percent in 2008, with retail sales up 21.8 percent at 10.8658 trillion yuan.

The SIC also sees exports rising 21 percent to $1.4738 trillion this year and imports up 27 percent at $1.2139 trillion, with the trade surplus falling 0.9 percent to $259.9 billion.

The think-tank said the impact of the global financial crisis on China's economy will intensify gradually, adding that maintaining rapid and stable economic growth and adjusting the structure of the economy will be the top task for the central government next year.

An active fiscal policy should be adopted in 2009, the think tank said, as it proposed reforms to the value-added tax from the current production-based system to a consumption-based VAT.

Meanwhile, treasury bond issues should be expanded to 200 billion yuan in 2009 to support infrastructure projects and rebuilding after natural disasters that hit the country earlier in the year.

The threshold for individual income tax should be further raised to 3,000 yuan from the current 2,000 yuan, while more measures should be launched to stimulate domestic consumption.

This photograph taken a year ago shows the craze among people in Nanjing to buy a Louis Vuitton. China's economy is forecast to expand by 9.8 percent in 2008, with consumer prices rising 6.3 percent, the State Information Center (SIC) said.[China Daily]

The SIC added that the liquidity situation faces greater uncertainty next year.

An accelerating outflow of "hot money" and difficulties in obtaining bank loans may bring about insufficient liquidity, it said, but inflows of "hot money" could also rise if China is perceived to be less affected by the financial crisis.

The think tank proposed prudent monetary policies next year and flexible adjustments to the bank reserve ratio and benchmark interest rates.

The central government must maintain the yuan at a stable level and reduce market expectations of a currency appreciation, the SIC said.

Meanwhile, China should take the opportunity to convert more of its foreign exchange assets into strategic resource assets, such as oil and minerals, it said.

The dramatic decline in international crude prices also provides an opportunity for the country to reform its pricing mechanism for energy and natural resources.

The central government should accelerate the construction of low-rent housing and expand overall supply.

In addition, more Chinese property developers must be allowed to raise funds from the bond market and encouraged to pursue mergers, the SIC added.