Chinese economy logs 11.3% growth in Q2

BEIJING: China’s economy expanded at its fastest pace in a decade with growth of 11.3% in the second quarter, official data shows, exceeding expectations and possibly signalling the need for new cooling measures.

The world’s fourth-largest economy defied a series of measures implemented by the central government over the past six months, with the second-quarter numbers lifting growth for the first half of ‘06 to 10.9%.

The data, released by the National Bureau of Statistics, showed China was on course to match the heady days of the mid-1990s when the nation’s economy — then at a much lower base — grew by around 11%.

Fixed-asset investment rose 30.9% in the second quarter of ‘06 and 29.8% for the first six months, according to the data, with the statistics bureau’s spokesman admitting the figures were a concern.

“The investment in fixed assets is excessive, the supply of credit is overdone,” bureau spokesman Zheng Jingping told a briefing in Beijing.

Meanwhile, industrial output grew 17.7% in the first half. China’s consumer price index — the main gauge of inflation and a key factor in determining the temperature of the economy — rose 1.4% in the second quarter of the year compared with the same period in ‘05.

The index was up 1.5% in June alone and 1.3% for the six months, according to the bureau. The bureau also confirmed data released last week showing China’s trade surplus hit a record $61.4bn in the six months as exports increased 25.2% to $428.6bn, while imports were up 21.3% at $367.1bn.

The trade surplus in June alone widened to a record $14.5bn, according to figures released by the Commerce Ministry last week.

The data was expected to increase pressure on the government to tighten monetary policy or allow the yuan (renminbi) to rise as part of efforts to better balance the economy and reduce its dependence for growth on exports.

But Zheng said the government was not preparing any sudden changes on the currency. “As Premier Wen Jiabao said, there will not be another surprise one-off appreciation of the renminbi through administrative measures,” Zheng told reporters following the release of the data.

“If anyone wants to play games with the renminbi, they won’t benefit from that.” In July last year, the government, under pressure from its trade partners led by the US, revalued the yuan by 2.1% against the dollar and allowed it to trade within set bands against the US and other currencies.

Although the US still says the yuan is being artificially kept too low, China has maintained that the current regime is appropriate. Gao Shanwen, an economist with Everbright Securities based in Shanghai, said the yuan needed to be revalued by between five and 10% if the economy was to be better balance.

“I think the core of (economic) policy should no doubt be the exchange rate,” Gao said. “The government is focusing on other things, such as controls on fixed assets, a (commercial bank) reserves ratio increase and so on but these measures have little effect on cooling the economy.”