U.S. News

China's Economy Surges 11.9% on Year in the Second Quarter


China's annual economic growth surged to 11.9% in the second quarter, easily beating market forecasts, as strong investment and a record trade surplus buoyed the world's fastest-growing major economy.

The figures, released on Thursday by the National Bureau of Statistics, leave China firmly on course to log its fifth consecutive year of double-digit growth and to overtake Germany before long as the third-biggest economy in the world.

The acceleration in gross domestic product growth from 11.1% in the first quarter easily beat expectations of a 10.8% rise and exceeded the 11.5% clip of the second quarter of 2006.

China did not publish updated quarterly growth rates when it made benchmark revisions to GDP in late 2005, so it is not possible to pinpoint when the economy last grew so fast.

The economy is firing on all cylinders despite a succession of tightening steps by the central bank and edicts by government planners aimed at slowing growth to a less giddy pace.

Inflation figures for June kept alive fears that the economy could boil over.

Annual consumer price inflation in June quickened to a 33-month high of 4.4% from 3.4% in May, easily surpassing forecasts of a 3.5% rise.

Food was the culprit, rising 7.6% in the first half of the year from a year earlier due to a spike in prices of pork, eggs and grain. Although non-food inflation remains low, economists said the surge could increase pressure on the central bank to raise interest rates for the third time this year.

"Obviously, this puts even more pressure on the authorities to take prompt action to look at their strategy," said Tai Hui, an economist with Standard Chartered Bank in Hong Kong.

Ben Simpfendorfer, an economist at Royal Bank of Scotland in Hong Kong, said an interest rate rise could come as soon as Friday. "Industrial output was also very strong, so we are seeing an acceleration in economic growth and Beijing needs to respond. I think we'll see a 27 basis point
rise in interest rates and then maybe administrative measures."

Industrial output in June rose 19.4% from a year earlier, while retail sales were up 16.0%, the statistics bureau said.

Overall investment in fixed assets such as factories and real estate was up 25.9% in the first half of the year. Investment in urban areas in June was up a strong 28.5% from a year earlier despite a government drive to head off wasteful spending, especially in industries that guzzle energy and spew out pollution.

"The systemic and structural problems existing in economic performance are still outstanding, in particular the unbalanced balance of payments, the high price rises for food and the high pressure on energy consumption and pollutant emission reduction," Li Xiaochao, the statistics agency's spokesman, said in a prepared statement.

He said the government would enhance controls over the economy to sustain sound, rapid growth.

The initial reaction in financial markets was muted. The Shanghai Stock Exchange's main index was up slightly in morning trading compared with a fall of 0.19% before the figures came out.