BEIJING: Government think tankthe State Information Centre is forecasting an 8.5% increase in GDP in the third quarter, up from 7.9% in the second quarter of 2009.

The increases follow a dramatic increase in state-induced bank lending which is expected to reach Y500bn ($73bn, €51bn, £44bn) in August after shrinking to a recent low of Y356bn ($52bn, €36bn, £31bn) in July.

The SIC confirmed that the Chinese economy had bottomed out but that weaker exports meant it was still growing below potential. Exports would fall 20% in the third quarter while imports would decline 12.7% compared to the same period last year.

Much of the new Chinese bank lending has gone into infrastructure development which means that the problem of over-capacity in sectors like steel and cement would remain a problem, the think tank says.

The SIC said that, with inflation running at below target, there was no reason for the Chinese government to tighten its fiscal policies, which will be a relief to many exporters depending on demand in China to boost their own prospects.

“China's CPI (inflation rate) has been falling for many months and it's a fact that deflation exists. So there's no basis for China to alter its monetary policy,” it commented.

Data sourced from Reuters; additional reporting by WARC staff