Mainland growth 11.4pc but signs point to cooling

PUBLISHED : Friday, 25 January, 2008, 12:00am
UPDATED : Friday, 25 January, 2008, 12:00am

Softening trend linked to austerity effort, global slowdown

The mainland economy last year expanded at the fastest pace in 13 years but slowing global growth and government austerity measures appear to be having some impact.

While growing a stunning 11.4 per cent over the entire year, some softening is already becoming evident, judging by National Bureau of Statistics data released yesterday.

Growth eased to 11.2 per cent in the fourth quarter from 11.5 per cent in the July-September period and 11.9 per cent in the second quarter.

Facing inflation pressures, Beijing has lifted interest rates and tightened bank lending in the world's fastest growing economy. Inflation last year reached 4.8 per cent, the steepest in 11 years. Last month, the consumer price index rose 6.5 per cent, slightly down from 6.9 per cent in November.

National Bureau of Statistics chief Xie Fuzhan said more effort was needed to prevent overheating and address inflation threats. 'The risk of the economy shifting from rapid growth to overheating still exists,' Mr Xie told a news conference.

Analysts therefore expect little let-up in the government's tightening campaign despite the expected slowdown in the global economy amid the United States subprime crisis.

'China's economy is one step away from overheating and its growth is becoming more balanced,' said Sun Mingchun, the China economist with Lehman Brothers. 'Credit tightening since November has proved quite effective in cooling down investment and production.

'The data, including lower CPI inflation, should at least reduce the need for more aggressive tightening in the near term.'

Last year marked the fifth consecutive year of double-digit growth for China, which is on course to overtake Germany as the world's third-largest economy this year.

Mr Xie said the past five years had been the best in terms of the mainland's development, thanks to Beijing's macro management. 'Average growth over the past five years has been 10.6 per cent - that's really extraordinary,' he said. 'The ups and downs each year have also been limited - that's also extraordinary.'

Gross domestic product last year totalled 24.7 trillion yuan as growth was boosted by record exports and massive capital spending.

The politically sensitive trade surplus last year soared 47.7 per cent to US$262.2 billion while fixed asset investment, covering infrastructure, roads and new equipment in factories, rose 24.8 per cent, the bureau said.

The rapid expansion came despite government efforts to cool the economy, including six interest-rate increases last year.

Mr Xie said he was positive about the economy this year as the government's tightening policies had had some impact.

However, he added that the mounting possibility of the US economy slipping into a recession was bound to have a negative effect on the world economy, with both the US and China powerful engines for the current cycle of global growth. 'If economic growth sees a mild slowdown, it fits in exactly with our wishes,' he said.

Yu Yongding, director of the World Economics and Politics Institute and a former adviser to the central bank, said the mainland could offset the negative impact of slowing growth by encouraging more domestic consumption.

Mr Xie said the government would make 'timely and proper' adjustments to its policies when necessary, and it aimed to reduce the impact of the US economic slowdown on the local economy.