China Q1 GDP up 11.1 pct, fastest growth since Q2 2006

Apr 19, 2007 - China's economic growth accelerated to 11.1 pct year-on-year in the first quarter of this year, stoking concerns that the government will take new steps -- possibly including an interest rate hike -- to tame the rapid expansion.

The National Bureau of Statistics said that gross domestic product rose to 5.03 trln yuan in the first quarter, with the growth rate up over the unrevised 10.4 pct rate recorded in the fourth quarter of last year.

The pace of growth was the fastest since the 11.3 pct recorded during the second quarter of last year and compares with the full-year 2006 expansion of 10.7 pct.

Li Xiaochao, spokesman of the statistics bureau, told reporters that the economy is currently growing at a stable pace -- with growth in net exports and consumption offsetting a slowdown in the growth of investment in fixed assets.

But Li also flagged risks to the current phase of China's economic expansion.

'If (the current pace of expansion) continues, the economy runs the risk of going to overheating from relatively fast,' he said.

'Except for the slowdown in fixed-asset investment, all other major economic indicators picked up their growth (rates in the first quarter). Such a speed up is based on an already high base figure,' he said.

Li would not be drawn into any specifics on future tightening policies, but he did say that 'our experience is that we should not take blunt measures but use modest and frequent moves to prevent an economic hard landing.'

He added that the government does not just use the headline GDP indicator in judging the health of the economy, but also takes into account the supply of resources and price levels.

The statistics agency earlier confirmed widespread market rumors that the consumer price index rose 3.3 pct in March, above the government goal of maintaining inflation at or below 3 pct this year.

The statistics bureau said that consumer inflation in the first quarter was up 2.7 pct, due largely to a 6.2 pct gain in food prices.

But Li, while acknowledging inflationary pressures in the economy, said that current price levels are generally stable, downplaying the impact of the price rises.

'The price level is stable in general (but) those for certain categories has risen too fast. Further upwards pressure still exists,' he said. The first quarter CPI rate of 2.7 pct is below the government's 3 pct limit this year and so is 'acceptable',' he said.

He noted that 1.5 percentage points of the first quarter CPI increase was due to the lagging effect from rising grain prices while the CPI in March was down 0.3 pct month-on-month.

Li said that core CPI -- which strips out food and energy prices -- was up 0.9 pct during the first quarter over the same period last year.

He said that the government will take consumer price inflation into consideration as it continues to deregulate prices for electricity, water and gas, though these price reform are likely to add somewhat to consumer price pressures in the period ahead.

Producer price inflation was up 2.7 pct year-on-year in March, slightly higher than the 2.6 pct rate in February. For the first quarter as whole, the PPI rate stood at 2.9 pct, the same rate as in the first quarter last year.

Investment in fixed-assets in urban areas was up 25.3 pct in the first quarter compared with the 29.8 pct recorded during the same period last year.

Overall fixed-asset investment in the first quarter rose 23.7 pct, down four percentage points on the same period last year, the statistics bureau said.

Industrial output was 18.3 pct in the first quarter compared with 16.7 pct during the same period last year and up 17.6 pct during March compared with the 18.5 pct recorded during January-February this year.

First quarter retail sales were up 14.9 pct during the first quarter, rising 15.5 pct in urban areas and 13.7 pct in rural areas.

Retail sales rose 15.3 pct in March alone, compared with the 14.7 pct growth recorded during the January-February period.

'The investment and consumption structure is improving and the upgrading of consumption (trends) is improving with more sales of cars, home appliances and decorative materials,' he said.

The statistics agency said that growth was 'steady and fast' in the first quarter, but noted 'outstanding problems' including the international payments imbalance, excessive liquidity and an 'irrational economic structure' -- meaning investment rising faster than consumption.

It said that the government will 'continue to strengthen and improve macroeconomic controls,' without being more specific.

The People's Bank of China, the central bank, has raised interest rates three times in the last year, and the commercial bank reserve requirement six times, and there are growing expectations that the central bank is poised to move again in the near-term.

(1 usd = 7.72 yuan)