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China's economic growth surges
Twelve per cent GDP growth fuels fears of overheating despite low inflation figures.
Last Modified: 15 Apr 2010 10:14 GMT
Showing confidence it can keep inflation in check, the authorities have raised fuel prices [Reuters]

China has taken another step towards overtaking Japan as the world's second-largest economy, after its gross domestic product grew by nearly 12 per cent in the first quarter of 2010.

Data released by the National Bureau of Statistics on Thursday showed economic growth of 11.9 per cent from a year earlier, up to eight trillion yuan ($1.2 trillion) in the first three months of the year.

Inflation also appeared to be under control, with the statistics bureau reporting that consumer prices had increased 2.2 per cent in the first quarter over the previous year, well below the government's ceiling of three per cent.

That eased pressure on Beijing to raise interest rates or cut back on stimulus spending immediately, or take other steps keep economy from overheating.

In a show of its confidence of its ability to keep inflation in check, the authorities raised fuel prices on Wednesday.

Caution urged

Still, the government called for caution.

"The current economic situation is still extremely complex and we still face many problems in the process of recovery," Li Xiaochao, a spokesman for the statistics bureau, told reporters in Beijing.

"There is, very frankly, a need to withdraw the stimulus ... you have very clearly the risk of some bubbles already being created"

Sebastien Barbe,
Credit Agricole Bank

He said the government will maintain pro-stimulus policies but be "more flexible and targeted, according to the situation".

Analysts said that while consumer inflation was low, housing costs and other sources of inflation pressure were rising.

On Wednesday, the government reported that housing prices in 70 major cities rose 11.7 per cent in March from a year earlier.

Sebastien Barbe, the chief emerging markets strategist at Credit Agricole Bank in Hong Kong, told Al Jazeera that the strong GDP number was also due to a low base effect from last year.

Overall, however, "the momentum is really strong and fully justifies that maybe Chinese leaders are going to move toward more tightening of monetary policy and also resume the appreciation of the currency in the next few months in order to … avoid any overheating", he said.

"There is, very frankly, a need to withdraw the stimulus. The other countries in Asia are doing so ... China definitely has to join the rest and withdraw the stimulus measures.

"You have very clearly the risk of some bubbles already being created in some parts of China," he said.

Set to overtake Japan

The latest data shows China is on the verge of overtaking Japan to become the world's second-largest economy, behind the US.

China's gross domestic product last year was $4.9 trillion, just behind Japan's $5.1 trillion. Tokyo has yet to report its first-quarter figures.

China's surge in economic expansion was up from just over six per cent in the same quarter a year ago and 10.7 per cent in the final quarter of 2009.

It was supported by a 19.6 per cent rise in industrial output over a year earlier and a nearly 26 per cent rise in investment in factories and other fixed assets.

Beijing also reported its first monthly trade deficit in six years for March as imports surged, reflecting China's faster recovery from the global crisis than its key trading partners.

Lending by Chinese banks fell 43 per cent in the first quarter from a year earlier as the government tightened credit controls while trying to wind down its stimulus.

The strong performance announced on Thursday might also allow a loosening of politically sensitive currency controls by offsetting possible losses in export industries.

Analysts expect Beijing to allow the yuan to rise some time this year, even though Hu Jintao, the president, and other leaders, have rejected foreign pressure, notably from the US, saying China will move at its own pace.

Beijing has frozen the yuan's value against the US dollar since 2008 to help Chinese exporters compete amid weak global demand.

US manufacturers argue the yuan is undervalued by 25 per cent to 40 per cent, giving China's exporters an unfair price advantage and swelling its trade surplus.

Source:
Al Jazeera and agencies
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