The economy expanded 8.9 per cent in the third quarter, writes CLIFFORD COONANin Zhengzhou, Henan province

A SKYLINE dotted with cranes and new banks, mobile phone shops mushrooming in retail areas – and thousands of new cars hitting the streets every month, zipping past busy property agencies.

This sounds like Ireland three years ago, or China three years ago, but this is Zhengzhou today, capital of China’s most populous province, Henan, home to 100 million people.

Workers are putting the finishing touches to a brand new exhibition centre, and it’s as if the global recession was happening on another planet.

The hum of activity in this city echoes the broader recovery in China. The economy expanded by a powerful 8.9 per cent in the third quarter, driven overwhelmingly by massive government stimulus spending focused on a 4 trillion yuan (about €400 billion) stimulus plan that has helped the nation spearhead recovery from the recession.

Growth in the world’s third-largest economy accelerated from 7.9 per cent in the second quarter and for the first nine months of the year was 7.7 per cent, according to the National Statistics Bureau. Back in the first three months of the year, growth was 6.1 per cent.

Vice-premier Li Keqiang underlined the growing optimism in China when he said the domestic economy’s rebound was firmer. “The momentum of China’s economic recovery has been consolidated, and economic development is better than expected at the beginning of the year,” says Mr Li, who is tipped for higher things when the current leadership steps down in three years.

He also says he had been confident China would meet its target of achieving growth of 8 per cent of GDP this year, and says the country would keep up its active fiscal policy and moderately loosen monetary policy.

Li Xiaochao, spokesman for the National Bureau of Statistics, said last week the 8 per cent target would be reached “without doubt”.

Economic expansion appears to be translating into more jobs, a crucial factor in China where analysts reckon about 8 per cent growth is needed to ensure job creation and to ward off politically destabilising demonstrations against the government.

Unemployment remains high – in some cases labour shortages and unemployment exist alongside each other because many of the factory workers laid off in the early days of the recession are reluctant to come back until the recovery is in full swing.

Some workers in the southern industrial cauldron of Guangdong or central industrial provinces such as Henan are complaining of how they are working shorter hours.

But it is looking increasingly like China’s stimulus plan, combined with efforts to loosen up the country’s savings rate, is paying off, and the growth is translating into new jobs.

In some cases, job losses in the badly hit export industry have been offset by fresh hirings in the massive infrastructural development programmes forming the backbone of the stimulus plan.

China will probably create two million more jobs in urban areas this year than officials had targeted, the government says.

Employment is “stable”, and the nation will exceed the goal of nine million additional urban jobs, Yin Chengji, a spokesman for the Human Resources and Social Security Ministry, says.

Urban registered unemployment was 4.3 per cent at the end of September, compared with 4.2 per cent at the end of 2008.

“Ah, so much building going on, lots of traffic,” says the taxi driver, as we hurtle through this second-tier city in China’s heartland, home to seven million people.

She is pointing to four huge buildings under construction, soon to be apartment blocks, with real estate advertisements below featuring Barack Obama.

While the effects of China’s stimulus plan can be seen on the streets of every Chinese city and town in the shape of major infrastructure projects, you can also see it in the shops and car dealerships. The Buick dealership on Zhengzhou’s outskirts is doing brisk business, and so it should.

There are lots of new cars on the road, as people buy on the back of tax breaks introduced as part of the stimulus plan, and they are going for Volkswagens, Buicks and a few Chinese-made cars.

China’s car market has outstripped that in the US to become the world’s largest, with sales up 34 per cent to 9.66 million vehicles in the first nine months of the year.

Shops are doing the kind of business that other countries can only dream of. Retail sales grew 15 per cent in the first three quarters of the year.

There are difficulties of course. Fears of overreliance on government spending abound – nearly 6.2 percentage points of China’s 7.1 per cent GDP growth in the first half came from investment by the state.

Lending by Chinese banks totalled 516.7 billion yuan (€51 billion) in September.

The new lending brings total loans issued in the first nine months of the year to 8.65 trillion yuan (€855 billion), a rise of nearly 150 per cent year-on-year.

Small to medium-sized enterprises are not benefiting as much as the big firms with political clout or the state-owned enterprises, which have also received a whack of state cash.

Investment bank Goldman Sachs says quarter-on-quarter growth had in fact slowed to about 10.2 per cent from the second quarter’s annualised pace of 16.5 per cent.

The next step for China, with the economy simmering nicely, is to work out an exit strategy in which it eases back on the heavy investment and lending. Wang Tao, head of China research at UBS, says she does not expect any withdrawal of government stimulus in the coming year, but expects its contribution to GDP growth to drop significantly in 2010.

“While CPI inflation is expected to be moderate, we see monetary policy facing increasing challenge in an environment of rising FX inflows and inflexible nominal exchange rate,” she adds. “Getting the credit growth right and pushing out structural reforms will be the key things to watch in the coming months. Our baseline scenario of robust real growth, modest inflation and continued capital inflows are conducive for further asset price rises.”

Driving through the streets of Zhengzhou, you see brand new branches of Industrial Commercial Bank of China, the world’s most profitable bank, and the biggest, with a market capitalisation of €167 billion.

The global economic recovery is firmly under way in a Chinese city of millions that most people have never heard of.