China’s GDP Growth Accelerates to Fastest Since 2007 (Update4)

By Bloomberg News
Jan. 21 (Bloomberg) -- China’s growth accelerated to the fastest pace since 2007 in the fourth quarter, capping Premier Wen Jiabao’s success in shielding the nation from the global recession and adding pressure to rein in a surge in credit.
Gross domestic product rose 10.7 percent from a year before, more than the median forecast of 10.5 percent in a Bloomberg News survey, a statistics bureau report showed in Beijing today.
Asset-price gains, particularly in property, are creating problems for the government to guide the economy, Ma Jiantang, who heads the bureau, told reporters after the release.
The report stokes speculation the central bank will start raising its benchmark interest rate and tighten restrictions on the nation’s lenders. The one-year swap rate, an indicator of future changes in borrowing costs, climbed and the People’s Bank of China guided three-month bill yields higher for the second time in two weeks.
"Today’s data suggest that tighter policy is just around the corner," said Brian Jackson, a Hong Kong-based strategist on emerging markets at Royal Bank of Canada. "Policy makers will need to move soon to stop the economy from overheating,"
he said, forecasting officials will end an exchange-rate peg and boost interest rates starting this quarter.
Stocks across Asia were mixed today, with Japan’s Nikkei
225 Average rising 1.2 percent at the close and Australia’s Standard & Poor’s/ASX 200 Index falling 0.8%. The Shanghai Composite Index was up 0.5 percent at 2:55 p.m. local time. The one-year swap rate, the fixed cost for receiving a floating rate for 12 months, rose three basis points to 2.32 percent.

Global Engine

The world may again this year count on China as the biggest engine of growth. The World Bank late yesterday raised its forecast for the global expansion in 2010 to 2.7 percent from 2 percent in June, and predicted 9 percent growth in China, which is poised to overtake Japan as No. 2 in GDP rankings this year.
Mining company Rio Tinto Group reported a 49 percent jump in fourth-quarter iron ore output on China’s demand, while companies ranging from Ford Motor Co. and Volkswagen AG to Hong Kong billionaire Cheng Yu-tung’s New World Department Store China Ltd. are expanding in the nation.
Consumer prices rose a more-than-forecast 1.9 percent in December from a year earlier, the second straight gain after nine declines. Producer prices climbed 1.7 percent, after declining for the previous 12 months, today’s report showed.

‘Too Worrisome’

"The inflation trend is too worrisome for the government and we will continue to see policy tightened," said Isaac Meng, senior economist at BNP Paribas SA in Beijing. Meng predicted that the consumer-price inflation rate will exceed 3 percent in coming months, and that the PBOC will increase banks’ ratio of assets held as reserves by 1.5 percentage points by July 1.
The statement from the statistics bureau today mirrored a Wen speech on Jan. 19 by omitting a pledge to keep monetary policy "moderately loose." Ma, the head of the National Bureau of Statistics, did cite that pledge in his press briefing.
After last year overtaking the U.S. as the biggest auto market and Germany as the biggest exporter, China is poised to slot behind America this year as the second-largest economy.
China’s GDP last year was 33.535 trillion yuan ($4.9 trillion), the statistics bureau said today, almost the same as the World Bank’s 2008 estimate for Japan.

China Versus Japan

Bank of America-Merrill Lynch said today that its estimates showed China didn’t surpass Japan last year. While Japan’s economy shrank, calculations are also affected by currency fluctuations.
According to Wen, policy makers’ key tasks this year include managing credit growth, controlling inflation and countering property speculation.
For the full year, GDP gained 8.7 percent, beating Wen’s 8 percent target. Retail sales rose 16.9 percent after adjusting for consumer price changes, the bureau said. The government previously said that gain was the biggest since 1986.
Wen this week indicated that he’s putting more emphasis on monthly data than year-on-year figures exaggerated by the slowdown from late 2008. December retail sales of 1.26 trillion yuan compared with a previously announced 1.13 trillion yuan in November, indicating an increase of more than 11 percent.
China will begin releasing month-on-month comparisons for key economic indicators from March, Ma said today.

Sales, Production

Sales quickened in December on a year-earlier basis, climbing 17.5 percent, while industrial production increased at a slower pace of 18.5 percent, today’s report showed. Urban fixed-asset investment jumped 30.5 percent in 2009, the statistics bureau said.
The economy’s third straight quarterly acceleration highlights risks that inflation may surge and asset bubbles form after monetary policy committee member Fan Gang said in November that growth of more than 10 percent is excessive. Banking regulator Liu Mingkang confirmed yesterday that lending limits exist for some banks and said credit growth will slow this year.
Fourth-quarter economic growth was driven by an unprecedented $586 billion stimulus package, subsidies for consumer purchases and a credit-fueled investment boom. The property market has rebounded and a 13-month slump in exports ended last month.
Managing the economy may become more difficult because of so-called hot money pouring in from investors betting on the nation’s recovery and gains in the yuan, which has been held at about 6.83 per dollar since July 2008 to help exporters. As much as $30 billion a month of speculative capital may flow in during the first half of this year, according to Bank of America- Merrill Lynch.

Bubble Concern

China is already a bubble, 62 percent of investors and analysts said in a quarterly Bloomberg survey of subscribers.
Liu, the banking regulator, said yesterday in Hong Kong that banks will extend 7.5 trillion yuan of loans this year, about 22 percent less than last year’s unprecedented 9.59 trillion yuan. The central bank this month ordered lenders to set aside a larger proportion of deposits as reserves and has guided bill yields higher after 2010 began with a surge in lending.
China’s 2009 GDP growth rate was down from 9.6 percent in the previous year. The statistics bureau today revised its estimate of growth in the third quarter of 2009 to 9.1 percent from 8.9 percent. It changed the first-quarter figure to 6.2 percent from 6.1 percent.