China records double-digit GDP growth

Julian Harris
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CHINA’S economic boom shows few signs of abating, with growth for the fourth quarter of 2010 soaring past forecasts, it was revealed yesterday.

And while inflation slowed in December it remains high enough for officials to tighten monetary policy, some economists have said.

The Chinese economy expanded by 9.8 per cent year-on-year in the three months to December.

Despite expectations of a modest slowdown, GDP growth accelerated from 9.6 per cent in the third quarter, keeping the country’s growth rate for the year in double digits of 10.3 per cent.

Consumer prices index (CPI) inflation slowed to 4.6 per cent year-on-year, from November’s 28-month high of 5.1 per cent.

The decline was largely due to lower food inflation, which dropped just below 10 per cent, after surging into double-digit growth in previous months.

Some economists predict another resurgence of price pressures this month.

“We expect CPI to bounce back and spike at around six per cent in January, before falling back gradually over the remainder of the year,” said Vlad Sobell of Daiwa Capital Markets.

“Inflation pressure is intensifying into January and the tightening pressure will intensify, especially considering the stronger than expected fourth quarter GDP growth,” said Isaac Meng, economist with BNP Paribas in Beijing.

Responding to intense concerns over price inflation, particularly in food, Chinese authorities have continued to lift the reserve ratio requirement (RRR).

Since the beginning of 2010, Chinese authorities increased RRR seven times. RRR stipulates the amount of funds that lenders must keep in reserve with the central bank.

However, interest rates have been increased only twice during that time and some analysts warn that more forceful moves are needed.

The data, released yesterday by the National Bureau of Statistics, caused China’s main stock index to shed 2.9 per cent as investors viewed the strong set of data as bolstering the case for tightening monetary policy.