honoluluadvertiser.com

Sponsored by:

Comment, blog & share photos

Log in | Become a member
The Honolulu Advertiser
Posted on: Thursday, April 15, 2010

China economy surges; inflation low


By ELAINE KURTENBACH
Associated Press

Hawaii news photo - The Honolulu Advertiser

It's good times in Beijing's business district, amid an expanding economy and another strong quarterly performance.

AP file photo

spacer spacer

SHANGHAI China's economic growth surged to 11.9 percent in the first quarter, possibly giving Beijing room to allow its currency to rise, but analysts warned it faces growing pressure to cut back stimulus and keep the world's third-largest economy from overheating.

The strong performance reported today might allow a loosening of politically volatile currency controls by offsetting possible losses in export industries. Analysts expect Beijing to allow the yuan to rise this year, though President Hu Jintao and others have rejected U.S. and other foreign pressure for a change, saying China will move at its own pace.

Consumer prices increased 2.2 percent in the first quarter over a year earlier, the National Bureau of Statistics said, well below the government's ceiling of 3 percent for the year. That eased pressure on Beijing for immediate interest rate hikes or other steps to cool the boom.

Still, the government call- ed for caution.

"The current economic situation is still extremely complex and we still face many problems in the process of recovery," the statistics bureau spokesman, Li Xiaochao, said in Beijing. He said the government will maintain pro-stimulus policies but be "more flexible and targeted, according to the situation."

Analysts cautioned that while consumer inflation is low, housing costs and other sources of inflation pressure are rising.

"With growth now strong but headline inflation still subdued, the government has a window of opportunity to rein in the policy stimulus before it tips over into excess," said Tom Orlick, an analyst in Beijing for Stone & McCarthy Research Associates, in a report.

The latest data showed China is on the verge of overtaking Japan as the second-largest economy behind the United States. China's gross domestic product last year was $4.9 trillion, just behind Japan's $5.1 trillion. Tokyo has yet to report first-quarter figures.

The surge in economic expansion was up from just over 6 percent in the same quarter a year ago and 10.7 percent in the final quarter of 2009. It was aided by a 19.6 percent rise in industrial output over a year earlier and a nearly 26 percent rise in investment in factories and other fixed assets.

Beijing has frozen the yuan's value against the U.S. dollar since 2008 to help Chinese exporters compete amid weak global demand. U.S. manufacturers argue the yuan is undervalued by 25 percent to 40 percent, giving China's exporters an unfair price advantage and swelling its trade surplus.

Chinese leaders face a challenge in checking inflation and curbing reckless, stimulus-fueled spending on unneeded factories and other assets that could leave a mountain of bad debts.

Beijing raised fuel prices yesterday in a show of confidence about its ability to keep inflation in check.

Inflation rose to 2.7 percent in February compared with a year earlier, adding to expectations prices may be getting out of hand. The statistics bureau said March inflation eased slightly, to 2.4 percent.

Yesterday, the government reported housing prices in 70 major cities rose 11.7 percent in March from a year earlier adding to alarm over a potentially dangerous bubble in real estate prices.

"With stimulus already partly removed, the key is whether the authorities can steer the economy onto a more sustainable growth path," said Stephen Green, an economist at Standard Chartered Bank in Shanghai.

Beijing 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 percent in the first quarter from a year earlier as the government tightened credit controls while trying to wind down its stimulus. Also, prices for farm produce have fallen for seven weeks, suggesting food costs would ease.

Regulators have renewed efforts to assess risks from loans and each day brings fresh reports of projects found to be unprofitable or ill-conceived.

A high-speed rail service from Beijing to China's Fujian province was shut down after just two months because passengers shunned it in favor of cheaper airfares.