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Powerhouse China slams on the brakes

City A.M. Reporter
BLISTERING growth in the fourth quarter saw China easily beat its 2009 growth target, putting it on course to overtake Japan to become the world’s second largest economy.

GDP surged an annualised 10.7 per cent between October and December, compared with a year earlier. This fell slightly short of market forecasts of 10.9 per cent, but up sharply from a revised 9.1 per cent in the third quarter.

The astounding fourth quarter meant that the economy grew 8.7 percent in 2009, exceeding the official target of eight per cent, seen as the minimum needed to create jobs and preserve social stability.

Growth of 8.7 per cent in 2009 fell short of the previous year’s rate of 9.6 per cent, but economists expect a rebound this year to around 9.5 per cent.

The better growth was helped by a low base of comparison in the same period a year earlier, when China’s export-orientated economy was dragged down by the global financial crisis, costing more than 20m migrant workers their jobs.

China’s fastest quarterly growth in two years raised expectations that Beijing will hike interest rates sometime in next few months. This would follow a series of smaller steps taken to contain buoyant lending and prevent the economy and its markets from overheating.

Alarmed by a new burst of credit at the start of January, the central bank last week increased the proportion of deposits that banks must hold in reserve, rather than lending out. This week saw the People’s Bank of China order some banks to sharply curtail lending for the rest of the month.

The Chinese government has embarked on a series of steps to boost domestic spending to replace Western export markets which are still feeling the effects of the crisis.

These steps helped China to overtake the United States in 2009 as the world’s largest car market. And China isn’t expected to stop at cars – Goldman Sachs predicts that China will eclipse the United States as the biggest economy in the world by 2027.