The mainland economy regained its pre-crisis strength last quarter by resuming double-digit growth, putting the nation on track to overtake Japan as the world's second-largest economy but also setting the stage for further monetary tightening. Gross domestic product expanded 10.7 per cent year on year in the fourth quarter, compared with growth of 6.2 per cent in the first quarter, 7.9 per cent in the second and 9.1 per cent in the third, according to data released yesterday by the National Bureau of Statistics. The economy expanded 8.7 per cent last year, surpassing the government's target of eight per cent. That goal was seen as crucial to fostering job creation and staving off social unrest in a nation of 1.3 billion people. However, the 2009 performance represented the slowest growth rate since 2001. With its faster growth in the fourth quarter, China is likely to replace Japan as the world's second-largest economy after the United States, probably later this year. It has already leapfrogged Germany to become the world's No1 exporter. China's fastest quarterly growth in two years prompted Ma Jiantang, the country's top statistician, to warn that Beijing faces a 'considerable challenge' in curbing inflation and preventing an asset bubble while balancing economic growth. Economists said the data signalled a need to end its pro-growth policy. 'The economic recovery is not only gaining momentum but also broadening,' Sun Mingchun, chief economist with Nomura International, said. Tom Orlik, a China analyst with Stone & McCarthy Research Associates, said: 'The time for stimulus is over, the time for tightening has begun.' Asian stocks fell immediately after the data release, before recouping losses. Hong Kong stocks fell 1.99 per cent to their lowest level in more than three months, while the Shanghai Composite Index staged a mild 0.22 per cent rebound. Ben Simpfendorfer, chief economist with the Royal Bank of Scotland, said the latest figures 'will harden fears of tightening'. Sun said: 'Given the strong recovery, we expect further tightening measures to be introduced.' Analysts said a low-base effect at the end of 2008 had played a part in boosting the fourth-quarter figures. Ma, the NBS' commissioner, attributed the recovery mainly to the government stimulus package designed to cope with the global financial crisis. 'Thanks to government efforts to deal with difficulties, the economy ended an accelerating slide and began to recover,' Ma said after releasing the data. A four trillion yuan (HK$4.52 trillion) fiscal stimulus package was complemented by an unprecedented surge in lending by state banks, ensuring that China was the first major economy to decisively recover from the worst global downturn in half a century. Describing last year as a 'harvest', Ma said the latest figures confirmed a V-shaped recovery. The consumer price index rose 1.9 per cent year on year last month. Authorities are already clamping down on bank lending and raising borrowing costs to keep a lid on price pressures. 'We need to prevent the overly fast increases in prices,' Ma said, but added inflation this year should be 'mild and controllable'. Ha Jiming, the chief economist with China International Capital Corp, expects the central bank to raise interest rates in the first quarter, as the CPI would increase to three per cent this quarter and five per cent in the second. Premier Wen Jiabao signalled this week that Beijing was carefully monitoring the risks associated with its hefty pump-priming last year. Retail sales jumped 17.5 per cent during the year to December, accelerating from the 15.8 per cent recorded in November. Fixed-asset investment grew 30.1 per cent last year, compared with 25.5 per cent in 2008, while industrial production growth slowed to 18.5 per cent from 19.2 per cent. Asked whether the government would end its pro-growth policy, Ma said: 'A key point of macro-regulation this year would be to balance the tasks of ensuring stable and relatively fast economic growth, adjusting the economic structure and regulating inflation prospects.' Growth spurt The percentage by which gross domestic product expanded in the fourth quarter: 10.7% Big picture Against an eight per cent target, the economy last year expanded: 8.7% Taking stock The percentage by which Hong Kong stocks fell after the data was released: 1.99% Inflation woes The percentage by which last month's consumer price index rose year on year: 1.9%
