China's growth fuels overheating fears
Higher-than-forecast inflation causes concern as China's GDP growth of 10.3% for 2010 makes it the world's second biggest economy
A greater than expected surge in China's growth last year and higher than forecast consumer inflation, may prompt the government to tighten policy, analysts said today.
The figures, which confirmed that China surpassed Japan last year to become the world's second-largest economy after the US, showed GDP growth of 10.3% for 2010. The fourth-quarter increase was 9.8%, the National Bureau of Statistics reported.
That was up from 9.6% in the previous quarter, and in contrast to forecasts it would slow to 9.2%, leading some analysts to warn of overheating. But it was still far behind the 11.9% leap seen in the first quarter of 2010 and others described growth as solid.
Inflation rose 4.6% in December from a year earlier. It was markedly lower than November's 28-month high of 5.1%, but analysts had expected it to fall to 4.4%. That took the year's rate to 3.3%.
Although the growth and inflation figures had been leaked in advance, China's main stock index, the Shanghai Composite, ended down 2.9%.
"China's economy maintained relatively stable and rapid development, avoiding overheating while also avoiding a 'double-dip' that everyone was concerned about," said Ma Jiantang, head of the statistics bureau.
He said the government had achieved "remarkable results" in tackling inflation, but said tightening the money supply would be crucial: "The price trends in 2011 cannot be taken lightly."
Bad weather and a surge in spending ahead of Chinese New Year usually boost consumer inflation at the start of the year.
China has tried to rein back growth by hiking banks' required reserves seven times in the last year and has raised interest rates twice.
But Brian Jackson, an economist with Royal Bank of Canada i! n Hong K ong, warned: "Beijing still has more work to do to keep the economy on an even keel. Risks are skewed to more aggressive action."
Pressure
In a report issued shortly after the figures were released, IHS analyst Alistair Thornton warned: "A new wave of credit expansion is driving inflationary pressure, in both consumer prices and asset markets."
He argued that inflationary pressures were spilling into non-food areas and that moves to rein in credit had been "timid".
"There has been a lot of money created over the last two years and ultimately you are going to get some inflationary impact. [Secondly], for a year and a half, the labour market has been very tight and wages have been rising quite substantially," said Arthur Kroeber of the Beijing-based Dragonomics consultancy. While money creation is now rising at a slower rate, inflation usually lags it by six to nine months, he added.
Economists polled by Reuters forecast that consumer inflation will average 4.3% this year, above the government's 4% target. State news agency Xinhua reported that premier Wen Jiabao told the State Council China's cabinet that the government will focus on curbing rises in the price of food and housing.
Some analysts fear last year's high growth reflects a property bubble, fuelled by heavy lending from banks. Investment in construction and other fixed assets was up 23.8% year on year, although the previous 12 months saw an even heftier increase of 30.1% due to stimulus spending.
"Because of the property bubble, risk exists almost everywhere in China's fragile financial system," said Yi Xianrong, an economist at the Chinese Academy of Social Sciences' finance research centre.
But Andy Rothman, macro-economist at investment group CLSA, argued: "Since the government's intervention in April, house price growth has been very moderate and much slower than growth in incomes: 0.4% month on month."
Kroeber said that while major structural problems in the property market needed t! o be add ressed, there was not a bubble.
"It is not going to pop [so that you have] two or three years where no one is building houses," he said, adding that much recent investment had been in desperately-needed social housing for those on lower incomes.
Last year also saw an 18.4% year-on-year increase in retail sales and a 15.7% rise in industrial output.
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