China's growth to surge ahead despite cooling measures

Strong first-quarter data expected; official warns of emerging risks of overheating



BEIJING - CHINA is set to report yet more blistering growth figures tomorrow amid an emerging consensus that government attempts to apply the brakes have been far too feeble to slow the runaway economy.

Even before the widely-anticipated release of first-quarter data, preliminary statistics suggested that key fixed asset investment was picking up dangerously and one official went on the record to warn against overheating.

'We have completed the first- quarter economic statistics,' said National Bureau of Statistics deputy department chief Geng Qinzeng, according to the Nanfang Daily.

'The people who have studied the figures think that risks of overheating are emerging and that the overheating could be as serious as it was last year,' he added.

China's economy, the world's fourth-largest, expanded by 10.7 per cent last year, the fourth consecutive year of double-digit growth, after a gain of 10.4 per cent in the three months ended December.

The pace likely picked up in the first three months of this year, with some forecasts running at more than 11 per cent, suggesting that the raft of cooling measures has so far had at best only a marginal impact, analysts said.

'The recent rebound confirms our view that these policies have had only a temporary effect as a result of their piecemeal nature,' said Lehman Brothers economist Sun Mingchun in Hong Kong.

'The government had promised a comprehensive list of policies and reforms to rebalance the economy, but has so far implemented only a few, with tweaks here and there.'

Lehman recently raised its forecast for first-quarter economic growth to 10.5 per cent from 10.1 per cent, with other estimates for the first three months running as high as 11.2 per cent.

The trend seemed confirmed by the government's announcement yesterday that fixed asset investment in urban areas, a key growth driver, rose 25.3 per cent in the first quarter.

That compared with a 23.4 per cent rise for the first two months of the year, indicating that investment picked up in March. Last year, this component expanded 24 per cent.

The apparent pickup happened in spite of a series of measures that China has adopted, including three interest rate hikes since early last year, with the most recent one coming last month, and a tightening up on liquidity in the banks.

The government has also taken steps to shrink its trade surplus by reducing tax incentives for exporters and making it more attractive for companies to import certain products, with little apparent effect.

The surplus in the first three months of this year was US$46.6 billion (S$70.6 billion), about double the figure in the same period last year.

Looking ahead, the main concern is the continued strong influx of capital, some of it 'hot money' hoping for quick gains if, for instance, the Chinese currency - the yuan - suddenly rises steeply in value.

'Once you lose control of the money supply, it can result in huge pressure on the economy,' said Sinolink Securities analyst Fu Chunjiang in Shanghai.

AGENCE FRANCE-PRESSE