ANALYSTS' VIEW: Brighter China GDP outlook spurs policy debate

BEIJING (Reuters) - China's annual GDP growth accelerated to 7.9 percent in the second quarter from 6.1 percent in the first quarter, fanning a debate as to how the central bank might adjust its "appropriately loose" monetary policy.

Following are later comments by economists on the data:

FRANK GONG, ECONOMIST AT J.P. MORGAN, HONG KONG:

GDP forecasts raised to 8.4 percent (previously 7.8 percent) for 2009 and to 9.0 percent (8.5 percent) for 2010.

"Although public spending could level off and the lift from the inventory cycle could ease, we believe that a sustained pick-up in China's private investment and consumption demand, together with a decent recovery in the global economy in 2H09, will sustain the economy's above-trend growth in coming quarters."

Interest rates to stay on hold till fourth quarter of 2010.

"On the policy front, given surprisingly strong loan growth, rising inflation expectations, and the surge in domestic asset prices, the central bank is fine-tuning its highly accommodative monetary policy stance in our view, relying on open market operation to restrain liquidity.

"In particular, we believe policymakers will likely increase scrutiny of new bank loans, especially short-term loans and bill financing, and use targeted central bank bills and/or window guidance to prevent bank lending from accelerating further.

"That said, we believe policymakers in China are unlikely to came out with drastic tightening measures on the monetary front, as external demand remains weak and inflation pressure is still subdued."

TIM CONDON, HEAD OF ASIA RESEARCH, ING, SINGAPORE:

"It's clear to me that China is really successfully shifting from export-driven growth to domestic-driven growth. It's very encouraging.

"We have revised our 2009 GDP forecast to 8.3 percent from 7.5 percent.

"There has been a bit of tightening on liquidity. I think the data may bring forward the timing of the first rate hike. We predict the first hike in the first quarter of 2010. The consensus is probably later than that, and the consensus is that China can keep this very loose policy for a very long time."

MINGCHUN SUN, NOMURA, HONG KONG:

"The mix of a strong economic recovery and prolonged deflation presents a challenge to policymakers.

"On the one hand, they are likely more confident about the growth outlook. Given surges in bank lending and the planned investment amount of newly started FAI projects, policymakers may start worrying about excess liquidity, overinvestment and asset price inflation in 2010 and beyond.