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SINGAPORE : Recent data out of China is pointing to strong growth for the world's third largest economy, and most experts are bullish about its outlook.
China is seeking to cut its dependence on exports to the West, and according to UBS, it can do so by increasing trade with regional economies.
But to keep its economic growth on track, UBS notes that China will have to keep a tight hand on inflation.
A strong rebound in exports in recent months has helped the Chinese economy to boom along.
But with growth in its key markets in the West still lagging far behind, the government is keen to boost domestic spending, and cut its dependence on shipments to the US and Europe.
According to UBS, China can diversify its export portfolio, to include a focus on emerging markets such as Russia, India and Brazil
It can also seek to boost intra-regional trade.
Pu Yonghao, chief investment strategist, Asia-Pacific, UBS, said: "In Asia, China will increase intra-regional trade dramatically. Indonesia exports a lot of coal materials to China, Singapore exports a lot of equipment and petrochemical products to China, so in a way, I think the potential for China to increase trade with Asian countries is enormous.
"Asian countries in a way are complementary to each other, in terms of trade portfolio, so the potential for inter-regional trade is going to continue to increase, so China does not have to rely on the US or Europe, and can basically support Asian countries and emerging markets."
UBS also said that domestic consumption in China can jump by as much as 50 per cent over the next five to 10 years.
But it warns of inflation, and said that the government has to keep a tight hand on consumer prices.
Latest numbers show that consumer price inflation in China rose by a higher-than-expected 2.7 per cent on-year in February - hitting a 16-month high.
UBS expects inflation to jump to four to five per cent by June or July.
It said that one possible way to cool down inflation would be to increase interest rates in the second half of the year.
This will have an impact on neighbouring economies.
Pu Yonghao said: "Applying it to Asia, a lot of countries export raw materials to China. If China starts tightening, that would affect Indian oil exports and Indonesia's coal exports. So if China starts to tighten...and imports are less and suddenly drop, Asia will be significantly affected. "
UBS projects the Chinese economy to grow by 9 per cent this year, higher than the Chinese government's forecast of 8 per cent. - CNA/ms
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