Expert: China GDP growth expected at 8-9% in 2010, 3 challenges ahead

A former Chinese legislature official and economist says, 2009 has been a key year for the country's economic recovery. Cheng Siwei believes the economy will continue to improve in 2010. But he also outlined 3 challenges that could hurt China's long-term growth.

Cheng Siwei believes China's economy will bottom out and move toward a more positive direction next year. But he also warns that, high economic growth could also bring several challenges that have to be addressed.

Cheng Siwei, Economist said "The first challenge for the country is to rein in excessive capacity. For instance, China's steel industry currently has 200 million tons of excessive output. Investments should not flow to traditional industries, but go to emerging sectors. While continuing its stimulus measures, China should stick to sustainable economic growth."

Cheng adds that new energy sectors will be important for China's economic growth next year. He also suggests the country should boost investment in modern service industries, including logistics, financial services, exhibition management, and consulting agencies.

He also urged local authorities to avoid accumulating large debts, which could eventually lead to financial losses for the central government.

Cheng Siwei said "Many local governments have borrowed lots of money from banks, and set up various infrastructure construction and investment firms. I think local authorities should really take a look at their ability to payback the loans."

Chen also warns of inflation risks. He says the country should work out plans to prevent consumer price inflation next year.

Cheng Siwei said "The CPI should be kept below 5 percent. If consumer prices rise less than 5 percent, we could say there is gentle inflation. If consumer prices are up more than 5 percent, we could say there is obvious inflation. But sometimes, our CPI estimation could be more dangerous than the actual figure itself. Because if we expect the high increase, we could be doing too much to prevent inflation. People will only feel safe if consumer prices are forecasted to grow below 5 percent."

Cheng Siwei expects China's GDP to grow by 8 to 9 percent in 2010. But he also warns, there is no need for the country to keep chasing high economic growth, because it could be unhealthy for the country's long-term development.