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Business

Economic boom stokes fears of inflation

Video by Luke BROWN , Aude Soufi

Text by News Wires

Latest update : 2010-01-21

China has returned to huge growth figures: 10.7 percent for the final quarter of last year, helping it close in on Japan, the world's second biggest economy. But with that growth come fears of inflation.

AFP - China's red-hot economy expanded by 8.7 percent in 2009 but inflation surged towards the end of the year, new data showed Thursday 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 percent was the fastest in two years.
  
And GDP growth surpassed the government's target of eight percent 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 (586 billion dollars) 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 percent year-on-year in December. The index fell 0.7 percent 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.
  
On Thursday, 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 percent, 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 percent in 2009 while overall fixed asset investment rose 30.1 percent, Thursday's data showed.
  
Industrial output from China's millions of factories and workshops rose 18 percent in the fourth quarter, and 11 percent for all of 2009.
  
Retail sales jumped 15.5 percent 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 percent growth in the final quarter of 2009 was the best result since the fourth quarter of 2007, when it hit 11.2 percent.
  
The full-year figure exceeded analyst expectations, but was down from 9.0 percent in 2008 and was the slowest full-year increase in eight years.
  
The latest figures are expected to increase pressure on Beijing to let its currency -- effectively pegged to the US dollar since mid-2008 -- to appreciate this year.
  
IHS Global Insight economist Ren Xianfang said she expected China to grow by 9.9 percent in 2010 and overtake Japan to become the world's second-biggest economy.
  
"I think it will happen this year," Ren said.
  
 

Date created : 2010-01-21

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