Sept. 22 (Bloomberg) -- China’s stimulus spending and record bank lending are interrupting efforts to restructure the economy away from investment- and export-led growth toward private consumption, said the Asian Development Bank.

The investment and lending boom prompted the bank to raise its forecast for China’s economic growth this year to 8.2 percent from a previous estimate of 7 percent, in a report released today. It increased its 2010 forecast to 8.9 percent from 8 percent.

President Barack Obama and his Group of 20 counterparts, meeting in Pittsburgh this week, will discuss policies to reduce imbalances in global spending and consumption that helped to trigger the financial crisis. China’s 4 trillion yuan ($586 billion) stimulus package, aimed at countering a slump in exports, is making the world’s third-biggest economy more dependent on investment.

“The massive fiscal stimulus announced last year and the aggressive monetary easing in 2009 has softened the blow of the global slump,” said Lee Jong-Wha, the ADB’s chief economist. The government’s challenge is to “swing attention back to the restructuring efforts after the economy is weaned off the fiscal stimulus,” the report added.

The Manila-based bank makes loans to underdeveloped countries to promote social and economic growth.

Consumer Debt

Investment accounted for 6.2 percentage points of China’s 7.1 percent economic expansion in the first half, the ADB said. Consumption contributed 3.8 percentage points, and a decline in the trade surplus wiped off 2.9 percentage points.

Obama underscored the need to redress global imbalances in an interview with CNN, broadcast Sept. 20.

“We can’t go back to the era where the Chinese or the Germans or other countries just are selling everything to us, we’re taking out a bunch of credit-card debt or home- equity loans, but we’re not selling anything to them,” the president said. The talks in Pittsburgh will focus on “making sure that there’s a more balanced economy,” he added.

China’s government must balance the need to maintain stimulus against the risk that excessive lending could fund speculative stock and property investments, undermine the quality of bank assets, and fuel inflation, the ADB said.

“Such a scenario might trigger a round of severe monetary tightening in the medium term that would pull growth down again,” the lender said.

Climbing Inflation

China’s inflation rate will climb to 3 percent for 2010 after a 0.5 percent decline in prices this year, the lender predicted. The trade surplus will decline this year, it added.

Gains in the nation’s foreign-exchange reserves to a world record $2.1 trillion raise concerns that inflows of speculative capital are increasing, the ADB said.

“Hot money appears to be back,” said Yolanda Fernandez Lommen, the lender’s Beijing-based chief China economist. “It’s a natural development because we are seeing interest rates in the major markets very close to zero and in China interest rates are above 5 percent.”

The ADB’s forecasts for China’s growth in 2009 and 2010 compare with the 8.3 percent and 9.5 percent median estimates in a Bloomberg News survey of economists last month.

The government is aiming for 8 percent growth this year to create enough jobs to reduce the risk of social instability in the world’s most populous nation. Premier Wen Jiabao said Sept. 10 that China “cannot and will not” pull back yet from monetary and fiscal stimulus measures.

Services Industry

Policy makers should focus on creating sustainable growth in the medium- and long-term by strengthening the services industry and boosting consumption, said Robert Wihtol, the ADB’s Beijing-based country director.

“There is a limit to public investment and monetary expansion,” Wihtol said.

The ADB highlighted the risk that China’s unemployed migrant workers may fall into poverty because they are often excluded from social protection programs.

About 24 million jobseekers will enter the labor market this year when millions of workers have already lost their jobs, the lender said. Measures the government could implement to help migrants include temporary income assistance, helping with education and food for children, and vocational training, the ADB added.

To contact the Bloomberg News staff on this story: Kevin Hamlin in Beijing on khamlin@bloomberg.net

Last Updated: September 22, 2009 03:35 EDT