BEIJING — China shrugged off atrocious winter weather and aglobal credit crunch to post surprisingly strong economic growth of 10.6 percent for the first quarter.
The outcome will be welcome to global policy makers, who are looking to bigemerging markets such as China to take up some of the slack in the world economyas the United States teeters on the brink of recession.
Annual gross domestic product growth dropped from 11.2 per cent in the finalquarter of 2007, the National Bureau of Statistics said on Wednesday, but itbeat market forecasts of 10 per cent despite a drive by the central bank to reinin lending.
With consumer price inflation remaining high at 8.3 per cent in the year toMarch, albeit down from near-12-year highs of 8.7 per cent in February,economists said Beijing would be wary of relaxing policy despite fears forChina's export prospects.
“The headline GDP number was slightly on the strong side and, given that wehad the snowstorm and tightening measures in the first quarter, this will givereason for the government to continue with its tightening bias,” said KelvinLau, an economist at Standard Chartered Bank in Hong Kong.
In fact, there was an immediate response, the central bank announcing anincrease of 0.5 percentage point in big banks' reserve requirements to 16 percent from April 25. It was the 16th increase since the middle of 2006.
The economic data showed inflation remained largely confined to food, whichcost 21 per cent more in the first quarter than a year earlier.
Consumer prices were up 8.0 per cent overall, but only 1.2 per cent excludingfood. Economists, however, said price pressures were building up: annualfactory-gate inflation leapt to 8.0 per cent in the year to March from 6.6 percent in February.
“We believe it is crucial to maintain the tightening policy stance to anchorrising inflation expectations. It is still too early for the government to claimvictory for their inflation battle,” Hong Liang and Yu Song with Goldman Sachssaid in a note to clients.
They expected the central bank to maintain its strict credit controls and tokeep pushing up the yuan's exchange rate at a faster pace. Two interest raterises were likely this year, they added.
Standard Chartered and JPMorgan Chase also reiterated their forecast ofhigher rates.
But some economists said Beijing was likely to alter its policy stance asgrowth slowed.
“Inflation remains a challenge; it remains at a very high level,” said YipingHuang with Citigroup in Hong Kong.
“In the short term they will probably want to continue to tighten,” he said.“But I suspect that within several months, the growth risks might overtake theinflation risks.”
The Shanghai stock market closed 1.69 per cent lower after the inflationfigures, even though they were leaked last week.
China has grown by 10 per cent a year or more since 2003, catapulting it intofourth place in the global economic rankings.
Economists expect it to leapfrog third-placed Germany this year, yet outputper head of its 1.3 billion people is only about $2,500 a year compared withabout $46,000 (U.S.) in the United States.
The statistics office said growth held up despite the spreading impact of theU.S. subprime credit crisis and what it called unprecedented ice storms inJanuary and February that disrupted output across much of southern China.
“Policies were put into place in an effective way, leading to steady and fasteconomic growth,” the office said.
Industrial production and fixed-asset investment both beat forecasts inMarch, while retail sales – boosted by inflation – jumped 21.5 per cent from ayear earlier.
Although the government wants to spur domestic demand, economists said itwould be difficult for export-dependent China to insulate itself from weaknessin the industrial world.
“Export growth will slow down in the second quarter, mainly due to weakeningdemand from the United States. As you can see, many companies have already feltthe pinch,” said Zhang Sihyuan, an analyst with Southwest Securities inBeijing.
