China's economy is expected to grow about 8 percent this year, the State Information Center (SIC) said in a report released on July 9.   However, the report believes this growth rate does not reflect China's long term sustainable trend, instead, the rebound is mainly caused by short term inventory adjustment. 

Due to the government's stimulus package and a series of policies, industrial and real estate surplus got reduced faster than what was originally expected.  As a result, China's economy bottomed out 3 month earlier.  However, potential risks still exist and the challenges in the next phase is to further digest existing housing inventory, as well as industrial overcapacity.

The report points out that a sustainable recovery should be based upon large scale business investment in fixed assets stemmed from the high utilization of existing capacity, but China's economy has not been positioned that way yet.  Given the global low growth rate and overcapacity, China faces tremendous tasks to digest the existing capacity.

The report says the organizational and structural problems of China's economy are the obstacles that should be addressed in the second half year.  Given the downward trend of China's economy has been turned around, the emphasis in the second half should be the combination of growth and structural adjustment.  There is no need just to pursue high GDP growth.  No further stimulus measures beyond the 4-trillion yuan economic stimulus package are necessary.

The SIC also forecasts the consumer price index, a main gauge of inflation, would decline about 0.5 percent in 2009 from a year earlier, while the producer price index would fall 5 percent year on year.   The report predicts China's import to shrink 16 percent and exports by 17.5 percent year on year. The annual trade surplus would reach 220 billion U.S. dollars, down from 295.5 billion U.S. dollars in 2008.