Asia's resilient economies are on a strong growth track, but must build up demand from their newly affluent consumers to offset shrinking exports to the crisis-hit West, the IMF said Tuesday.

In its latest World Economic Outlook, the International Monetary Fund also warned of the dangers of inflation in much of Asia, where some central banks are having to tighten monetary policy or hinting at rate rises to come.

The twice-yearly IMF report envisaged a modest slowdown in China, and said Japan would contract this year but bounce back in 2012 as reconstruction from its March 11 disasters begins to trickle through and sentiment picks up.

Asia's exports have eased with the key markets of the United States and Europe consumed by debt crises, although the Fund said accommodative policies by several governments had lifted demand at home.

It said that while developing economies would expand this year, led by China and India, growth would slow in 2012 while more needed to be done to lessen the region's reliance on external trade.

"Growth is expected to remain strong, with weaker external demand offset by still-solid domestic demand.

"That said, there has been limited progress in external rebalancing that would durably enhance the role of domestic demand in growth," the report said.

High prices, led by the surging cost of food, have led to monetary tightening steps across Asia, with India hiking interest rates 12 times in 18 months and China raising the cost of borrowing five times since October.

The tightening measures have added to the drag on some economies.

The Fund said price rises would be higher in economies with "sustained strong credit growth, positive output gaps, and/or relatively accommodative policies -- for instance India, South Korea or Vietnam".

The IMF downgraded its forecast for gross domestic product in China -- the world's second largest economy -- to 9.5 percent in 2011 and 9.0 percent in 2012, after double-digit growth for most of the past decade.

But China's long battle to bring prices down would eventually pay off, it said.

It gave an upbeat outlook for Japan next year, despite the impact of a strong yen, predicting a strong reverse from this year thanks to a huge rebuilding programme after the March earthquake-tsunami disasters.

"Reports from Japan confirm a rapid recovery in both output and domestic spending. Industrial production is now growing rapidly, business sentiment is improving sharply, and household spending is recovering quickly."

The report said Japan's economy would shrink 0.5 percent over the whole of 2011, slightly less than the 0.7 percent forecast by the IMF in June, and hit 2.3 percent in 2012.

The IMF, however, warned that Tokyo should bring down its huge public debt, which at approximately 200 percent of GDP is the industrialised world's biggest and has led to several credit downgrades.

Growth in Southeast Asia's five biggest developing economies was seen at 5.3 percent this year and 5.6 percent next year, still healthy but much slower than the 6.9 percent seen in 2010 as exports ease.

However strong domestic demand in the five countries -- Indonesia, Thailand, Malaysia, the Philippines and Vietnam -- is expected to take up the slack from slowing exports, the IMF said.

Singapore, which is part of Southeast Asia but is classified by the IMF as a newly industrialised economy, was forecast to grow 5.3 percent this year and 4.3 percent next year, down sharply from its rapid-fire 14.5 percent in 2010.

earlier related report
US hits out at China business climate
Beijing (AFP) Sept 20, 2011 - The US ambassador to China on Tuesday hit out at the business climate in the world's second largest economy, urging it to open up further to foreign business and exports.

Speaking to hundreds of US and Chinese business leaders, Gary Locke also urged the creation of a top-level structure to stamp out intellectual property theft.

His speech comes ahead of "a major trade enforcement action against China" to be announced by US Trade Representative Ron Kirk later Tuesday, according to an advisory issued by his office that provided no further details.

"China's current business climate is causing growing frustrations among foreign business and government leaders, including my colleagues in Washington," Locke said.

He said foreign businesses faced "substantial restrictions in participating in a variety of Chinese industries, ranging from healthcare to energy to financial services and several others".

"And in industries like mining, power generation and transportation, the Chinese government selects national champions and effectively shuts out foreign competition altogether," he said.

His comments reflect a report released earlier this month by the European Union Chamber of Commerce, which said China was setting up new obstacles for foreign companies wanting to invest in the Asian nation.

Locke said he would take US trade delegations to emerging Chinese cities to target cooperation in clean and renewable energy, railways, healthcare, aviation and information and communication technologies, in a bid to expand business ties between the United States and China.

He also added he would push for reforms of the visa application process that sometimes stalls Chinese investors from engaging in America's struggling economy.

Singling out China's rampant piracy software as an area for improvement, Locke said that only eight US cents of legal software was sold in China for every $1 in computer hardware, compared with $0.88 sold in the US.

Locke called on China to create "a permanent State Council-level leadership structure to lead and coordinate IPR enforcement efforts at all levels of government focused on serious IP theft," including growing Internet piracy.

The State Council is China's cabinet, headed by Premier Wen Jiabao.

Locke was speaking at an American Chamber of Commerce and US-China Business Council event, where guests included Zhou Wenzhong, China's former ambassador to Washington, and Fu Chengyu, chairman of Sinopec, Asia's largest refiner.

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