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Chinese economy grew 10.7 percent in 2006, facing strains from excessive investment

Chinese economy grew 10.7 percent in 2006, facing strains from excessive investment

China's sizzling economy grew by 10.7 percent last year and faces strains from a soaring trade surplus and excessive investment, the government said Thursday, leaving open the possibility of new interest rate hikes or economic controls.
The annual growth figure was China's highest since the 10.9 percent rate reported in 1995 and exceeded forecasts by most Chinese and foreign economists.
Growth in 2007 should continue to be "fast and stable," the commissioner of the National Bureau of Statistics, Xie Fuzhan, said at a news conference.
Investment in real estate and other assets surged, while consumer spending grew more slowly, Xie reported, suggesting Beijing still faces problems in its effort to cool off an investment boom and reduce China's reliance on exports by boosting domestic consumption.
"Outstanding problems still exist with the irrational relationship between investment and consumption, the imbalance of payments and excess liquidity in the banking system," Xie said.
In efforts to boost consumer spending, he said, "we are still not seeing significant results."
Investment in real estate grew by 21.8 percent _ 0.9 percentage point above 2005's growth rate _ while overall investment in assets was up 24 percent, Xie said. He said retail sales grew at an annual rate of 13.7 percent, a slightly faster rate than 2005.
Worried that runaway spending could spark inflation or a debt crisis, the government has raised interest rates twice, repeatedly tightened bank credit and imposed curbs on investment in real estate, auto factories and other projects.
Fourth quarter growth slowed slightly, but not much. Gross domestic product expanded 10.4 percent in the three months through December, down from a decade-high 11.5 percent in the second quarter to the third quarter's 10.6 percent.
But Stephen Green, an economist at Standard Chartered Bank in Shanghai, said he doesn't see much of a slowdown.
"We do not believe the slowdown story," Green said in a report to clients. "Real import growth has revived; transport is growing strong, as are retail sales, car sales, oil imports and power production.
"This does not smell like a slowdown," the report said.
Green said he expected Beijing to raise interest rates again, probably in the second quarter of this year.
China's swelling trade surplus is challenging Beijing's ability to contain inflationary pressures amid a flood of export revenues and foreign investment.
The government announced earlier this month that the country's global trade surplus in 2006 jumped nearly 75 percent from the previous year to a record US$177.5 billion (euro136.5 billion).
To prevent that influx of money from pushing up inflation, the central bank is draining billions of dollars a month from the economy. It has piled up the world's biggest foreign reserves, which stood at just over US$1 trillion at the end of December.
Incomes of urban Chinese households grew 10.4 percent in real terms last year, while those in the countryside rose 7.4 percent, the statistics agency said.
Rural incomes are "still at a comparatively low level," Xie said, though he stressed that compared with China's historic poverty, "this is a great leap forward."
President Hu Jintao's government has promised to spend more on aid to farmers and health, education and other services to spread prosperity to the countryside, home to 800 million people, most of whom have missed out on China's economic boom.
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Associated Press Writer Scott McDonald in Beijing contributed to this report.


Updated : 2021-02-25 10:18 GMT+08:00