China growth could slow to 8 percent: Goldman's O'Neill says

HONG KONG Thu May 12, 2011 3:01am EDT

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HONG KONG (Reuters) - China's economic growth could slow to 8 percent, Goldman Sach's Jim O'Neill said on Thursday, as economic data and a drop in commodity prices point to Beijing ending its monetary tightening policy sometime this year.

The slowdown to around 8 percent would likely occur in the second half of this year, adding that given the data out this week, it could occur as early as the second-quarter, O'Neill, Chairman of Goldman Sachs Asset Management told a small media gathering in Hong Kong.

"It is my judgment that the Chinese economy is probably slowing down more than people realize," he said, adding that as a result, he was not surprised that commodity prices are coming under pressure.

As evidence, he cited the Goldman Sachs China Activity Index, the firm's propriperary indicator of GDP, which shows that the momentum of Chinese growth has slowed, and that slowdown was supported by economic data reported this week.

"And I suspect that China is going to slow down to around 8 pct GDP growth. If I'm right, that means sometime in the 2nd half this year, Chinese inflation will not be a problem, and will come back down to around 4 percent," he said. "And the PBOC will be able to stop tightening monetary policy and we can all live happily ever after."

China's industrial output growth eased much more than expected in April to suggest the world's second-biggest economy is cooling, even as the inflation rate came in a shade lower than the 32-month-high reached in March.

"It's not surprising at all that commodities prices are coming under pressure," he said. "The surprise is that they rose so much earlier in the year."

A stop to tightening, he suspected would result in a China stock rally.

BRIIC? BRICK??

As he has done before, O'Neill outlined a set of slides that shows how it is no longer appropriate label BRIC nations as "emerging markets." Those economies are what he calls "growth economies" now, while setting aside 11 nations he refers to as proper "emerging economies."

A lot of speculation has gone into what country could be added to the now famous BRIC acronym, an acronym O'Neill says he dreamed up and ever since it "has literally changed my life."

Several times during the roundtable, O'Neill, wearing a gray suit and drinking a Diet Coke to fight jet lag, referred to himself jokingly as "Mr. Bric."

"To be a BRIC, you've got to be at least 3 percent of (world) GDP, with potential of being 5 percent. It's very hard to see any country in that category, Indonesia and Mexico would have to do some spectacular things to get there. Indonesia would have to grow by idiotic amounts to get even close."

O'Neill added that being bigger than Turkey does not qualify Indonesia as a BRIC, and that Russia is still three times the size of the Southeast Asian nation.

"Why on earth do people call Korea an emerging market?" he asked.

O'Neill closed the session with his thoughts on Russia.

"I get an email every day on how I should drop Russia from the BRICs. And it's like a reverse indicator. Russia is cheap," he said. "Tactically, I find Russia to be the most interesting of the growth markets."

(Reporting by Michael Flaherty; Editing by Ramya Venugopal)

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