China GDP Expands 11.2%, Supporting Global Growth (Update2)
By Nipa Piboontanasawat and Li Yanping
Jan. 24 (Bloomberg) -- China's economy expanded more than 11 percent for the fourth straight quarter, supporting global growth as a recession looms in the U.S.
Gross domestic product rose 11.2 percent in the three months ended Dec. 31, compared with 11.5 percent in the third quarter, the statistics bureau said in Beijing today.
Inflation cooled to a 6.5 percent pace in December, still double the central bank's annual target, from an 11-year high of 6.9 percent in November. China, poised to become the biggest contributor to global growth this year, risks triggering a sudden slowdown by curbing lending to tame prices just as export demand weakens.
``Tightening too much when the U.S. is heading for a recession would be a double hit for the global economy,'' said Wang Qing, chief China economist at Morgan Stanley in Hong Kong. ``Inflation is the key challenge.''
The yuan traded at 7.2253 per dollar at 11:25 a.m. in Shanghai, from 7.2250 before the report. The yield on the 2.8 percent government bond due in March 2016 was little changed at 4.35 percent.
``The economy still faces outstanding problems, including the risk of shifting from growing rapidly to overheating, and rising inflationary pressure,'' the statistics bureau said.
The expansion was less than the 11.3 percent median estimate of 23 economists surveyed by Bloomberg News.
Weaker Export Growth
Weaker U.S. demand and cuts to export incentives have already cooled growth in overseas shipments from China, a manufacturing base for Motorola Inc. mobile phones and Samsung Electronics Co. televisions. Exports rose at the slowest pace since 2002 in the fourth quarter.
Currency gains may become a more important tool for cooling the economy this year after six interest-rate increases in 2007 and the raising of banks' reserve ratios to a 20-year high. A stronger yuan would lower import costs, push up export prices, and curb inflows of cash from record trade surpluses.
The currency's gains versus the U.S. dollar accelerated to almost 3 percent in the fourth quarter, compared with a 7 percent pace for all of last year. It's up more than 14 percent since a fixed exchange rate ended in July 2005.
Pressure for Yuan Gains
``The yuan should be allowed to appreciate faster to deal with excess liquidity and inflation,'' Frank Gong, Hong Kong- based chief China economist at JPMorgan Chase & Co., said today. ``The pressure is building and the argument is gaining momentum within the Chinese government.''
China is less likely to push its one-year lending rate beyond a nine-year high of 7.47 percent after the Federal Reserve unexpectedly cut its benchmark interest rate by 75 basis points to 3.5 percent this week to stave off a recession.
The risk is ``hot money'' flooding China's economy, Yu Yongding, director of the World Economics and Politics Institute in Beijing, said in Davos, Switzerland yesterday. Morgan Stanley cut yesterday its forecast for rate increases in China this year to none from two.
China's economy grew 11.4 percent in 2007 from a year earlier, the fastest pace in 13 years, to 24.7 trillion yuan ($3.4 trillion). The nation accounted for 17 percent of global growth, the same as the U.S., the United Nations estimates, and is poised to overtake Germany as the world's third-biggest economy this year.
Food Stampedes
Consumer prices advanced 4.8 percent in 2007 from a year earlier, a tripling of the pace in 2006, the statistics bureau said. Fitch Ratings forecast today a gain of more than 5 percent this year.
Soaring costs have triggered stampedes at sales of discounted cooking oil and eggs, price controls on staple foods and memories of the unrest before the 1989 Tiananmen Square protests and crackdown. The World Bank estimates 300 million Chinese people live in poverty.
Inflation ``is quickly spreading from `just' an economic issue to a potential social instability threat,'' said Michael Kurtz, an equity strategist at Bear Stearns Ltd. in Hong Kong.
Consumer prices rose more quickly in the countryside than in cities last year and the gap between rural and urban incomes widened. Urban disposable incomes climbed 17.2 percent from a year earlier to 13,786 yuan ($1,908), while rural earnings rose 15.4 percent to 4,140 yuan.
Factory and property investment in urban areas climbed 25.8 percent in 2007 from a year earlier, the statistics bureau said, up from the 24.5 percent pace in 2006. Industrial output rose 17.4 percent in December, up from 17.3 percent in November.
Priming the Economy
A sudden slowdown may expose industrial overcapacity, leading to bad loans, job losses and deflation in an economy that the statistics bureau today described as ``not efficient enough'' and in need of ``further reform.''
The government has the means to stimulate the economy if necessary. Tax revenue soared 31 percent last year to 4.94 trillion yuan and rising consumption is another shield. Retail sales climbed 20.2 percent in December from a year earlier, the fastest pace in at least nine years, partly because of inflation.
``China will still be well insulated at home in a U.S. recession,'' said Jonathan Anderson, global emerging markets economist at UBS AG in Hong Kong. He forecasts China's economy will grow 10 percent in 2008 and 9.5 percent in 2009 as domestic demand softens the effect of any export slowdown.
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