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China's Industrial Production Surges at the Start of 2007

China's industrial production growth surged at the start of the year, reinforcing expectations that Beijing will soon tighten policy afresh to prevent the world's fourth-largest economy from overheating.

Factory output in January and February combined grew 18.5% from a year earlier, the National Bureau of Statistics said on Thursday.

That dwarfed the median forecast of economists polled by Reuters for a rise of 15.5% rise. It was also much faster than December's 14.7% growth rate and the increase of 16.2% logged in the first two months of 2006.

The output figures chimed with other strong data releases this week showing that bank lending and money growth powered ahead in February and that exports grew 50% last month from a year earlier.

"Robust industrial production growth suggests the economy has rebounded sharply from the policy-induced slowdown in the third quarter of 2006. If activity and loan provision growth continues to accelerate, we believe the risks for policy tightening will rise," economists at Goldman Sachs told clients.

Output growth was last stronger in June 2006, when it was up 19.5% from a year earlier. Output of transport equipment rose 26.1% in the first two months, ferrous metals 28.5%, chemicals 21.7% and textiles 17.8%.

Factories are humming not only because of booming exports, but also because of lofty investment rates as China rushes to industrialize and urbanize.

Rising consumer spending is providing further impetus: retail sales in the first two months of the year rose 14.7% from a year earlier. China also churned out 29% more cars in the first two months of the year.

Gao Shanwen, chief analyst at Everbright Securities in Shanghai said the rebound from last year's government-instigated slowdown was normal because the impact of curbs on land use and tighter environmental standards always fade after a few months.

He said this week's data pointed to a gross domestic product growth rate of 10.5% for the first quarter and for 2007 as a whole, which would be the fifth straight year of double-digit expansion.

But Gao was less convinced of the need for austerity measures, arguing that inflation was under control. "I have to reaffirm that this is just a rebound, rather than overheating because consumer inflation is not very high and the producer price index is on a downtrend," Gao said.

The statistics bureau did not issue individual figures for January and February.

Economists say a single figure for the two-month period provides a better picture because production patterns are distorted by the Lunar New Year, which fell in February this year but straddled the two months in 2006.