Finance news. My opinion.

China’s central bank may raise interest rates in 2010, after five cuts last year, as the world and domestic economies recover, Credit Suisse Group AG said.

“China’s economy is recovering quicker than the rest of the world so obviously it’s going to normalize monetary policy ahead of the rest of the world,” Tao Dong, chief Asia economist at Credit Suisse in Hong Kong, said in a phone interview today.

China is likely to keep the one-year lending rate at 5.31 percent this year and then raise it by 99 basis points in 2010, according to Tao. The central bank may tighten monetary policy ahead of countries including the U.S. because of a lending boom, strong consumer demand and quick results from stimulus spending, the economist said.

“Liquidity is flooding into the Chinese economy, whereas in the U.S. banks refuse to lend,” Tao said. “People are buying,” he added, citing automobile sales that surpassed those of the U.S. in the first quarter of this year.

The central bank may reinstate quotas limiting lending by banks as early as next quarter to rein in asset-price increases after a surge in new loans, the economist said.

The Shanghai Composite Index of stocks has climbed 42 percent this year. New lending rose sixfold in March from a year earlier to 1.89 trillion yuan ($278 billion) after the government dropped quotas and pressed lenders to support a 4 trillion yuan stimulus plan same day cash advance.

Manufacturing Growth

A rate increase is possible in the second half of this year as the Chinese economy stabilizes, Walkman Lee, a Hong Kong- based partner at accountancy firm KPMG, said in a phone interview today.

China’s manufacturing expanded for the first time in nine months in April after declines in export orders moderated and investment surged because of the stimulus package, according to a survey of purchasing managers by CLSA Asia-Pacific Markets.

The official manufacturing index has shown an expansion for two straight months.

The People’s Bank of China cut rates in the final four months of 2008. The first reduction was as Lehman Brothers Holdings Inc. filed for bankruptcy and the central bank followed up with the biggest single cut since the 1997-98 Asian financial crisis.

The Chinese economy expanded 6.1 percent in the first quarter from a year earlier, lagging behind growth of 9 percent for all of 2008 and 13 percent for 2007. Growth may be 7 percent in the second quarter, according to the State Information Center.

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Unemployment in the U.S. probably climbed in April to a 25-year high, showing the labor market will be one of the last areas to emerge from the worst recession in at least 50 years, economists said before reports this week.

The jobless rate jumped to 8.9 percent last month from 8.5 percent in March and employers cut at least 600,000 workers from payrolls for a fifth straight time, according to the median estimate in a Bloomberg News survey ahead of a May 8 Labor Department report. Other figures may show service industries shrank at a slower pace.

Companies may keep trimming staff and spending in a bid to shore up profits until sales show sustained gains, something economists say is unlikely to happen for months. Even when an economic rebound begins to take hold, the loss of jobs and smaller paychecks are likely to lead to a muted expansion.

“The recession will be officially over this year, but the recovery will be sluggish,” said Michael Gregory, a senior economist at BMO Capital Markets in Toronto. “Getting out of the jobs recession will take longer.”

An estimated 600,000 workers were cut from payrolls last month, according to the survey median, bringing total job losses since the recession began in December 2007 to 5.7 million, the most of any economic slump in the post-World War II era.

It’s “hard to fathom any sustained strength in consumer spending” until the “hefty” job losses ease, said BMO’s Gregory, who estimated the unemployment rate may rise to 9.5 percent by yearend and level off around 9.7 percent in 2010.

GDP Shrinks

Gross domestic product dropped at a 6.1 percent annual pace in the first three months of this year after contracting at a 6.3 percent rate in the last quarter of 2008, government figures showed last week. Consumer spending climbed, ending its biggest slide since 1980.

Still, economists surveyed by Bloomberg in early April projected spending, the biggest part of the economy, will falter again this quarter before showing more sustained gains in the second half of the year.

Automakers have been among the hardest hit industries as consumers boost savings and pay down debt. Vehicles sold at a 9.3 million annual pace in April, less than forecast and down from a 9.9 million pace a month earlier, industry figures showed last week.

A liquidation by Chrysler LLC, which the government pushed into bankruptcy on April 30, would result in the loss of 38,500 jobs should its proposed partnership with Italy’s Fiat SpA be rejected by the court, the company estimated online payday cash loan.

Fewer Dealers

General Motors Corp., surviving on U.S. loans, is working to beat a June 1 bankruptcy deadline set by the government. GM’s plan to trim its retail franchises may eliminate as many as 137,330 dealership jobs, the National Automobile Dealers Association estimated.

Economists project the Labor report may show manufacturers cut payrolls by 157,000 workers in April after a decline of 161,000 a month earlier.

One bright spot last month may have been government staffing for the 2010 census. The U.S. Census Bureau began hiring 140,000 temporary employees in April to start conducting the population count that happens once every 10 years. They are the first of more than 1.4 million people it will hire over the next year.

Another report may show service providers, which account for almost 90 percent of the economy, are starting to improve. The Institute for Supply Management’s index of non-manufacturing businesses probably climbed to 42 in April, according to the Bloomberg survey. Readings below 50 signal contraction. The Tempe, Arizona-based group will release the figures on May 5.

Casinos Hurting

The deteriorating labor market is one reason service industries are still shrinking, albeit at a slower pace. Las Vegas-based Wynn Resorts Ltd.’s revenue is down as business at casinos slows, Chief Executive Officer Steve Wynn said last week.

“People who have lost their jobs and whose businesses are in trouble don’t have money for leisure and optional expenses,” Wynn said in an April 28 speech in Beverly Hills, California.

The ISM’s gauge of manufacturing climbed to 40.1 in April, signaling the worst of the factory slump may be over, figures showed last week.

Employers are trying to get more out of the staff they have left to give profits an added lift. Labor Department figures on May 7 may show productivity grew at a 0.8 percent annual pace in the first quarter as companies slashed payrolls and hours even faster than output slumped, according to the Bloomberg survey.

Tomorrow, the National Association of Realtors may report the number of Americans who signed contracts to buy previously owned homes was probably unchanged in March as lower prices attracted buyers, according to the Bloomberg survey median.

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