Monday, January 30

China posts scorching growth but prices heat up

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BEIJING: China’s red-hot economy expanded by 8.7 per cent in 2009 but inflation surged towards the end of the year, new data showed yesterday as authorities intervened to avert the risk of overheating.Gross domestic product in the world’s third-largest economy, which analysts say is on track to overtake struggling Japan, returned to double-digit growth in the fourth quarter.

The growth of 10.7 per cent was the fastest in two years.

And GDP growth surpassed the government’s target of eight per cent for the full year, a level that is seen as crucial to foster job creation and stave off social unrest in China’s urbanising population of 1.3 billion people.

But China’s biggest rise in inflation in 13 months underlined the broader challenges of breakneck growth, and came as the World Bank and International Monetary Fund warned anew that the country could face a US-style bubble.

Ma Jiantang, commissioner of the National Bureau of Statistics, credited a government stimulus package worth four trillion yuan (US$586 billion) with sustaining growth in a year when much of the global economy was in crisis.

“We need to prevent the overly fast increases in prices and keep a close eye on the trend in prices,” Ma added at a news conference, but said he believed inflation in 2010 should be “mild and controllable”.

China’s consumer price index rose 1.9 per cent year-on-year in December.

The index fell 0.7 per cent over 2009 after the nation only emerged from an almost year-long bout of deflation in November.

After starting 2009 trying to prop up economic growth, Beijing ended it faced with growing inflationary pressures and the threat of asset bubbles caused by rampant bank lending, which last year nearly doubled from 2008.

Authorities are already clamping down.

Yesterday, the People’s Bank of China raised the interest rate on its benchmark three-month treasury bills for the second time in two weeks in a bid to deter new lending.

Chinese banks are also under orders to raise their capital cushions against the risk of bad debts, as the country’s newly affluent consumers go on a binge of buying property, cars and luxury goods.

Fears of further tightening by Beijing weighed on Hong Kong’s Hang Seng share index, which closed down 1.99 per cent, although the Shanghai market recouped earlier losses.

“Policymakers will need to move soon to stop the economy from overheating,” said Brian Jackson, a Hong Kong-based strategist at Royal Bank of Canada.

“We have already seen some initial steps in the direction of tighter policy, but higher rates and a stronger currency will also be part of the package.” China’s urban fixed asset investment, a measure of government spending on infrastructure and a key driver of the economy, rose 30.5 per cent in 2009 while overall fixed asset investment rose 30.1 per cent, yesterday’s data showed.

Industrial output from China’s millions of factories and workshops rose 18 per cent in the fourth quarter, and 11 per cent for all of 2009.

Retail sales jumped 15.5 per cent in 2009.

This week, Premier Wen Jiabao said Beijing was carefully monitoring the risks associated with its hefty pump-priming of last year, although China’s top banking regulator Wednesday denied that banks had been ordered to stop lending.

Wen’s comments reinforced signs that China could exit its aggressive stimulus policy and apply the brakes, a step that would have broader repercussions for a world economy increasingly reliant on Chinese growth.

The 10.7 per cent growth in the final quarter of 2009 was the best result since the fourth quarter of 2007, when it hit 11.2 per cent. — AFP