china

Overheating fears as China growth speeds up
Michael Sainsbury, China correspondent From: The Australian April 16, 2010 12:00AM Increase Text Size Decrease Text Size Print Email Share Add to Digg Add to del.icio.us Add to Facebook Add to Kwoff Add to Myspace Add to Newsvine What are these?
CHINA's economy grew by 11.9 per cent in the first quarter - its fastest growth for almost three years - fuelling fears of overheating and further policy tightening in the world's third-biggest economy.

China's State Council said the nation's economic recovery had been further consolidated in recent months, but there were still serious problems and risks to deal with.

Top of the list was an increasingly frothy real-estate market. Property prices in China grew at their fastest pace in nearly five years in March, according to official figures.

The national property price index surged 11.7 per cent in March from a year earlier, up from February's 10.7 per cent rise, the National Bureau of Statistics said.

The increase was the largest since July 2005, when the bureau switched to an index based on data in 70 cities, rather than 35.

Despite the growth, inflation eased back to 2.4 per cent after hitting 2.7 per cent in the January-February period.

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The GDP growth of 11.9 per cent was up from the 10.7 per cent gain reported in the fourth quarter of last year, and was faster than market expectations of 11.5 per cent.

After the figures were released, Australian investors sold shares on fears of further policy tightening, the ASX 200 closing off its highs but still above the 5000 level for the first time since September 2008.

The benchmark was up 7.2 points, or 0.1 per cent, at 5001.9 points, but off its intraday high of 5025 points.

Analysts remain divided as to whether the economy is growing too quickly and the possibility of a resultant property bubble punching a hole in the national economy.

"In short, growth is strong, but there are signs of overheating," Standard Chartered Bank economist Stephen Green said.

"With stimulus already partly removed, the key is whether the authorities can steer the economy on to a more sustainable growth path, or whether generalised inflation and/or an asset bubble will break out in the second half and then trigger a bigger policy-induced slowdown for China in 2011."

Mr Green said: "The GDP figures were a little stronger than expected, but given that the government has already started tightening and the effect of the stimulus winding down will be much clearer in the second half of the year, we don't at the moment expect additional severe tightening measures.

"Other data continue to look sturdy," Mr Green said.

Industrial production grew by 18.1 per cent year on year in March (versus 12.8 per cent in January-February), a little stronger than expected.

Fixed asset investment, which surged above 30 per cent in January and stayed there all year on the back of a massive rise in bank lending, slowed further to 26.4 per cent for the first quarter compared with last year, as the government began clamping down on new loans. New project approvals slowed.

Retail sales remained healthy, growing by 17. 9 per cent in March compared with an average of 16.5 per cent in the last quarter of last year, and were supported by fresh growth in wages.

Economist Intelligence Units Beijing chief Stephen Joske said the clamp on local government infrastructure spending after last year's phenomenal growth was already under way and would be clearer in the data later this year.

"Property is not yet in bubble territory except in some particular markets like Hainan," he said.

"Underlying demand is strong, so the main threat to property prices comes from changes in tax policy, but major changes are unlikely soon. The true size of the bad loans problems is probably understated but it's not a short-term or even long-term macro threat, as the central government has a strong fiscal position and will bail out local governments with severe debt problems."

Beijing University economics professor Michael Pettis said, however, in a recent blog post that the last bank bailout in China led to lower consumption nationally, exactly the opposite to what the government is seeking as it tries to rebalance China's growth from investment and exports towards domestic spending.

ADDITIONAL REPORTING: SARA RICH