Analysts at Citigroup Inc have warned that economic growth this year might be lower than estimates, asÂ
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inflation pressures restrict government efforts on further loosening in the second half.
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The US banking giant predicted on Monday that China's GDP growth in 2013 will be 7.8 percent.
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It expects the central bank to raise interest rates in the fourth quarter and the first quarter of next year, byÂ
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25 basis points each time, which would further drag growth to 7.3 percent in 2014.
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Oliver Chiu, head of research and investment advisory in the wealth management unit of Citibank (China),Â
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said the government will set the GDP target at 7 percent, but actual growth will be between 7.5 and 8Â
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percent.
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He added that during the second half of the year, the rate of inflation based on the consumer price indexÂ
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could reach as high as 3.5 percent.
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Citi's less optimistic forecast comes as most analysts adjusted their growth estimates upwards, followingÂ
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the pick-up in China's economy during the fourth quarter of 2012.
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Standard Chartered Bank said on Monday it has upgraded its 2013 GDP growth forecast for China to 8.3Â
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percent, from a flat rate of 7.8 percent.
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It said it expected quarter-on-quarter growth to accelerate in the second half of this year, before cooling inÂ
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the second half of 2014.
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Citi's Chiu said that although China's growth will remain relatively high, the biggest risk to the world'sÂ
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second-largest economy is whether it can transform its economic model to more efficient, domestic-drivenÂ
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growth.
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"If the country cannot accelerate its transition, by 2020 its growth momentum would be very questionableÂ
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as basically all the necessary infrastructure construction, such as its railway network, would beÂ
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completed."
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Consumption contributed more to GDP growth than investment in 2012.
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Last year, domestic consumption in China accounted for 26 percent of US consumption, while itsÂ
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investment was 235 percent of that in the US, according to figures from Citi.
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Jeremy Stevens, China economist at the South Africa-based Standard Bank Group, said: "A shift inÂ
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emphasis away from activity underpinned by the simple mobilization of resources - land, labor or capital -Â
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to a smarter, more efficient economy is necessary.
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"Without change, the economy will simply bounce from sugar rush to sugar rush - short-term highs, withÂ
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no lasting value.
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"The rebound in activity since July has not convinced us of its durability."
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Stevens added that China's investment-led model still has a heartbeat, but funding conditions areÂ
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challenged.
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In addition, "non-performing loans in the banking sector will rise sharply and the sector will under-perform,Â
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hurting the growth prognosis further".
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Citi's report added that exterior demand is unlikely to show any substantial improvement this year, withÂ
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growth in both exports and imports remaining single digit.
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It said the global economy will grow by 2.6 percent this year, and 3.1 percent in 2014, and that any globalÂ
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rebound to the levels before the economic crisis of 2007-08 is unlikely before 2015.
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