China's economy still growing at a rate of almost 10%, while consumer price rises hit a 32-month high
China's fast-paced economic growth slowed only slightly in the first quarter, while inflation leapt to a three-year high despite Beijing's repeated attempts to tackle the increasing cost of living.
The economy grew by 9.7% in the first three months of the year, down from 9.8% in the fourth quarter, but faster than market forecasts. Consumer prices in March rose 5.4% year on year, the highest in 32 months and well above February's 4.9% increase, according to figures from the National Bureau of Statistics.
Officials believe controlling inflation is crucial to maintaining stability and have raised interest rates four times and increased reserve ratios six times since October.
"Despite the most aggressive period of tightening in years, the government cannot seem to slow the economy down," said Alistair Thornton of IHS Global Insight.
"Beijing has had to regularly revert to heavy-handed administrative measures, such as direct price controls in the food sector and limits on house purchases in the property market, in order to contain inflationary pressure. With inflation expectations still running high and prices at disconcerting levels, the government will need to press on with its tightening schedule."
Standard Chartered said it was raising its full-year growth estimate from 8.5% to 9.3% because of the news.
But Wang Jin, an analyst with Guotai Junan Securities in Shanghai, told Reuters: "The economic figures in the first quarter are strong, but still within market expectations. I don't think the economy faces risks of overheating and the growth momentum will slow down in coming months.
"The central bank will stick with its tightening stance and we expect more increases in reserve requirements and interest rates."
On Wednesday, the Chinese premier Wen Jiabao vowed that Beijing would use "every means" to get inflation under control. He gave his strongest hint yet that the government will allow greater appreciation of the yuan. He said Beijing would "further improve the yuan exchange rate mechanism and increase yuan exchange rate flexibility to eliminate inflationary monetary conditions" along with other policy measures such as adjusting interest rates and ratio requirements.
Analysts expect inflation to peak again in June but wane in the second half of the year.
The 11.7% rise in food costs reflected growing demand, a shrinking pool of young workers ? pushing up agricultural wages ? and supply chain problems, said Arthur Kroeber of economic consultancy GaveKal-Dragonomics.
"In public, the officials like to talk about commodity prices, because it is always easier to blame problems on something outside," he said. "But if you look at what they are actually doing, I think it is pretty clearly understood that the sources of inflation are domestic."
That required tighter monetary policy and market reforms to improve efficiency, he said.
Standard Chartered said it was clear that non-food items were also fuelling inflation. "The headache for Beijing policymakers will get worse as headline growth continues to slow in Q2, while inflation remains stubbornly high," Stephen Green, Li Wei and Shen Wan predicted in a note.
Earlier this year, Wen said China would target 7% growth over the next five years, rather than 8% as it has done previously. That was a signal of intent rather than a prediction: the country regularly overshoots its targets by a long way. Last year, growth hit 10.3%, thanks to an 11.9% spurt in the first quarter.
China has long vowed to rebalance its economy so that domestic consumption reduces its reliance on exports and investment. These latest statistics offered some cause for hope, with consumption contributing 5.9 percentage points to first quarter growth and investment 4.3 percentage points, with net exports reducing the total slightly.
Kroeber said: "There's a consumption component that's very strong, but the retail sales number is going down. If you look at auto sales, they've slowed down a lot. Consumer confidence surveys show it has progressively weakened over the last six months .... The headline number is implausibly strong."
He said the data did not allow analysts to judge what was happening to consumer spending.
China has just recorded its first quarterly trade deficit since 2004, but analysts think that reflects the soaring cost of the commodities it imports. It is still expected to record a large surplus over the year as a whole.
President Hu Jintao told a business forum in Hainan, southern China that the country's economic model still needed adjustment. "Over the next five years, China will make a great effort to boost domestic demand, especially consumer demand," he said.
China's benchmark Shanghai Composite Index initially fell on release of the statistics, but closed up 0.3% at 3,050.5.
Source: http://www.guardian.co.uk/business/2011/apr/15/chinese-economic-growth-slows
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