China’s growth is likely to accelerate this year and next as the world’s second-biggest economy weathers a fragile global recovery, according to the Organisation for Economic Cooperation and Development.

“China could maintain high, though gradually easing, growth during the current decade,” the Paris-based organisation said in Beijing on Friday. Expansion may reach 8.5 per cent this year and 8.9 per cent in 2014, the OECD said. The economy may overtake the US in 2016, based on calculations that take price differences into account, it said.

China will benefit from increased demand for housing and a pickup in business investment, while export gains stay “subdued,” the group said. Premier Li Keqiang, who took office this month, faces the challenge of sustaining a recovery from the weakest growth in 13 years while reining in excessive gains in consumer and property prices.

“The gradual pick-up in activity provides a strong background for the ambitious reforms China needs to put in place to continue on the road to prosperity,” Angel Gurria, the OECD’s secretary-general, said in a press briefing today in Beijing. “We are encouraged by the new leadership’s policy vision.”

The economy expanded 7.9 per cent in the final three months of last year, the first acceleration in two years. Full-year growth of 7.8 per cent was the least since 1999.

The global economic environment “remains fragile” and China can undertake “further cautious monetary and fiscal stimulus” if needed, the OECD said. An “appropriate response” for China would be to lower interest rates in the event of “worse-than-expected developments” abroad, especially in the euro area, the organisation said.

China’s economy, now the world’s second-biggest, is on course to overtake the US as the largest around 2016 as measured by purchasing power parity, which accounts for differences in price levels, the report said. Growth may average eight per cent in per capita terms this decade, the OECD said.

Maintaining rapid economic growth in China “will require further large-scale urbanisation,” the OECD said. The group also called for “renewed reform momentum” on policies such as moving toward market-determined interest rates and allowing greater exchange-rate flexibility, it said.

Asked about the biggest risk to China’s economy, Gurria said in a Bloomberg Television interview today that “they have to continue with reforms, so the biggest risk would be that they stop the reforms.” Monetary policy can stay “relatively accommodative” in the near term while guarding against inflation risks, the OECD said.

Economy to grow 8%: IMF

International Monetary Fund officials are confident that China’s economy is on a path of eight per cent growth and see no major short-term risks, according to the fund’s top adviser for the country.

Markus Rodlauer, the IMF’s mission chief for China and deputy Asia-Pacific director in Washington, also repeated the fund’s position that the yuan is “moderately undervalued,” speaking in a Bloomberg Television interview on Thursday in Hong Kong. China needs to let the currency trade more freely, Rodlauer said.

(Bloomberg)