THERE ARE precious few signs of global financial crisis in China these days, as data released yesterday showed growth last year was 8.7 per cent.
The figure was way ahead of forecasts and putting China on course to overtake Japan as the world’s second-largest economy.
Quarterly growth surged to 10.7 per cent in the final quarter of 2009. But there were signs that inflation was picking up, adding to pressure on Beijing to tighten monetary policy and cool rising prices without disrupting the recovery.
Ma Jiantong, commissioner of the National Bureau of Statistics, hailed China as the first economy to recover from the Great Recession, but said the government focus would now be on cooling inflation which has been fuelled by massive bank lending in support of €4 billion stimulus programme.
“We need to prevent overly fast price increases,” he said. Last year marked China becoming the world’s largest auto market, and also saw huge property price rises.
There is a widespread belief that strong Chinese growth could help to drive a global recovery by boosting demand for foreign oil, consumer goods and other imports. For China, it’s a delicate balancing act. The leadership has been trying to rein in lending without denting public confidence.
Economists expect an increase in interest rates in the second half of the year to cool inflationary pressures and prevent a property bubble.
“The price of assets is probably growing too fast,” said Mr Ma.
The consumer price index rose in November by 0.6 per cent from a year earlier after falling for most of 2009. The rate jumped to 1.9 per cent in December.
“We would approach the issue of the impact of Chinese monetary tightening from other directions. One is the perception that China could be a major source of demand for goods and services produced by the West, offsetting sluggish consumption in the US in particular. In fact, China accounted for just 8 per cent of global GDP in 2009, compared to the share of around 25 per cent accounted for by the US and 22 per cent by the euro zone,” wrote Mark Williams at Capital Economics.
“What’s more, China’s economy could only make up for weaker demand elsewhere if it grew much more quickly than it did before the crisis, which always seemed unlikely. Nonetheless, there is so much hype about China that any sign of a policy-induced slowdown there will still have a disproportionate impact on sentiment.”
Economist Nouriel Roubini, famed for correctly forecasting the financial downturn, said that China needed to tighten monetary policy to avoid asset bubbles.
“It will be nice to see an increase in the interest rate . . . in China because credit growth in China has been excessive,” Mr Roubini told the Asian Financial Forum.
