U.S. News

China's Economy Grows at Fastest Pace in 11 Years


China's economy grew 10.7% in 2006, the fastest rate since 1995, as investment and exports powered ahead despite a raft of government curbs to keep the pace of expansion in check.

The world's fourth-largest economy has now grown at double-digit rates for four years in a row. At this pace, China's output could leapfrog Germany's and catapult it into third place in the global rankings as soon as 2008, when it will showcase its meteoric rise by hosting the Olympic Games. It overtook Britain in 2005.

"The message is that the economy is booming and I'm forecasting that it will grow 10.7% again in 2007," said Tim Condon, head of Asian financial market research at ING in Singapore.

The 10.7% clip of gross domestic product growth was faster than the preliminary 10.5% estimate given earlier in the month by officials. It was up from 10.4% in 2005 and was the briskest rate since 10.9% in 1995.

The National Bureau of Statistics, in a report released on Thursday, said GDP between October and December rose 10.4% from a year earlier, slowing a bit from a 10.6% annual pace in the third quarter. Economists traced the modest slowdown to the ripple effects of a spate of tightening measures in recent months.

Since April, the central bank has raised interest rates twice and increased four times the proportion of deposits that banks must hold in reserve instead of lending out.

The central government has also cracked down on wasteful investments, naming and shaming officials and provinces that failed to comply with orders to tighten up planning procedures and observe tougher environmental protection criteria.
Not Bad But Still Problematic

The curbs succeeded in inducing a slowdown in urban fixed-asset investment growth in December alone to 13.8% from a year earlier. For the whole year, such investment was up 24.5% against 26.6% in the January-November period. "Our investment structure has improved and investment in sectors experiencing overcapacity has been brought under control," National Bureau of Statistics head Xie Fuzhan told a news conference.

Capital spending has been driving China's boom, pushing up commodity prices around the globe and fanning fears in Beijing that the sheer scale of investment is depleting natural resources, especially water, and seriously damaging the environment.

He said policy makers also faced a challenge to mop up the money pouring into the economy from China's trade surplus, which rose 74% last year to a record $177.47 billion.

China is striving to rely less on exports and investment and more on consumption. But Xie conceded: "We're finding it hard to meet the target of changing our economic structure."

Economists said the figures suggested the Chinese economy, though plagued by imbalances, was heading into 2007 with a strong head of steam. "The overall picture looks good. But GDP growth is still a bit faster than desired," Li Mingliang, an analyst with Haitong Securities in Shanghai, said.

Among other data released on Thursday, the statistics office said overall investment in fixed assets such as property, factories and roads grew 24% in 2006 compared with 25.7% in 2005. Industrial output increased 16.6% in 2006, picking up slightly from 16.4% in 2005. Retail sales rose 13.7% last year, compared with 12.9% in 2005.

Despite the giddy growth, inflation remained broadly subdued. Consumer prices rose by 1.5% on average in 2006, compared with 1.8% in 2005, but rose in December to 2.8% from a year earlier.