China returns to double-digit growth

Beijing : The Chinese economy returned to double digit growth in the fourth quarter, with a jump of 10.7 per cent year-on-year, but inflation is creeping up again amid fears of overheating.

Speculation in the stock market and property, fuelled by last year's cheap loans and stimulus package, is of particular concern.

Although the fourth quarter GDP figure was slightly below analysts' expectations, it was the fastest for two years and a marked increase on the previous quarter's 9.1 per cent. It took 2009's growth to 8.7 per cent, outstripping the official growth target of 8 per cent, the level some believe essential to create enough jobs to match growth in the labour force.

Some analysts had doubted whether it was possible to reach that, given that growth in the first quarter was just 6.1 per cent. Others argued that Beijing would ensure that it was met.

China's total gross domestic output was 33.5 trillion yuan (£3 trillion) in 2009. Analysts believe it is likely to leapfrog Japan this year to become the world's second largest economy, although it is still far behind in terms of consumption.

"China has become the first, on the whole, to achieve recovery and stabilization in its economy," Ma Jiantang, commissioner of the National Bureau of Statistics, told a press conference in Beijing. But he said China would avoid major adjustments to economic policy given the "uncertainties" it still faces and a weak global outlook.

JP Morgan and RBS economists raised their forecasts for this year to 10 per cent, from 9.7 per cent and 9.5 per cent respectively, on the back of the figures.

Banks have been ordered to hike their reserve ratios. Economists now expect an interest rate hike too, after consumer prices — which reportedly fell for much of the year — rose sharply. In November they were up 0.6 per cent year-on-year, and December saw a 1.9 per cent increase.

Rate rise?

Citigroup economist Ken Peng said it was the sharpest one-month rise in inflation since February 2008, when China was suffering record consumer price hikes.

"The month-on-month growth momentum is very strong," said Xing Ziqiang, an economist at CICC in Beijing. "I think the chances for us to see an interest rate rise in the first quarter are increasing."

But Andy Rothman, a strategist at CLSA, told Reuters: "92 per cent of the consumer price index increase was from food, and much of the food increase was due to a big year-on-year jump in vegetable prices… due in part to the base effect and short-term weather issues.

"We don't expect Beijing to panic about CPI."

Analysts predict that inflation could hit 3 to 4 per cent in coming months.

"The challenge for China's government will be to manage the withdrawal of the stimulus without scaring the markets or pulling the rug out from under the recovery," warned Tom Orlik, an economist in Beijing for Stone & McCarthy Research Associates.

Beijing reported earlier this month that exports grew 17.7 per cent in Dec-ember compared with a year earlier — the first rise in 14 months.

Standard Chartered said in a research note that the spike was due to the collapse of exports at the end of 2008, but the figures will increase pressure on China to allow its currency to appreciate again.

"Yuan appreciation is likely to resume in March or April, though the rise will be gradual, say about 3-5 per cent a year," said Xing at CICC. Consumer spending is also growing at double-digit annual rates, aided by government subsidies to farmers to buy domestic appliances and tax-breaks on fuel efficient cars. China overtook the United States as the biggest car market last year.

But consumption figures include government as well as household purchases. Analysts warn China still has a long way to go in rebalancing its economy - and that it will struggle to do so on its current pattern of development.

Over the last two decades, household income growth has lagged far behind the growth in GDP.

— Guardian News & Media Limited

US backs google

The US expects China to conduct a full and transparent investigation of Google Inc.'s accusations that its Chinese website was attacked in part to target email accounts of human rights activists, a senior US official said.

The State Department hasn't lodged a formal protest to the Chinese government over the incident, and whether one is issued may hinge on how China responds to US questions in discussions planned in the coming days, said the official, speaking on condition of anonymity because of the case's sensitivity.

The US envoy for East Asia said on Wednesday that while the Chinese government has denied involvement in the cyber attacks, it is in the "best position" to explain what happened to the operator of the world's most-popular search engine. The envoy, Assistant Secretary of State Kurt Campbell, declined to comment on the pending US protest, known as a demarche.

Google has said the "highly sophisticated" attacks included theft of its intellectual property and targeted at least 20 other international companies in technology, finance and chemicals. The company said it would stop censoring its search engine results as required by the Chinese government, and may end its operations in China.

Secretary of State Hillary Clinton is scheduled to give a major address on internet freedom and security today in Washington.

— Bloomberg News