China's economy in fear of overheating

China's economy in fear of overheating
Email Print Normal font Large font April 19, 2007 - 6:44PM

AdvertisementChina's sizzling economy has surged 11.1 per cent in the first quarter from the same period a year earlier and inflation rose to its highest level in more than two years, raising prospects authorities will take further measures to cool the economy.

The consumer price index in March rose 3.3 per cent, the National Bureau of Statistics said at a news conference, while fixed-asset investment countrywide grew a robust 23.7 per cent.

"If this type of fast growth continues, there is the possibility of shifting from fast growth to overheating. There is that risk," bureau spokesman Li Xiaochao told a news conference.

The rapid economic growth and investment increase outstripped expectations for the world's fourth-biggest economy and come despite a series of policy tightening measures by the government to rein in growth that last year came to 10.7 per cent.

The first quarter growth rate was up from 10.4 per cent in the last quarter of 2006, but down slightly from the 11.5 per cent in the second quarter of last year, the fastest rate in a decade.

While China's leaders want rapid growth to reduce poverty, they also are trying to rein in an investment boom in real estate and other industries where they worry that overspending on unneeded factories and other assets could ignite inflation or a debt crisis.

Concerns about inflation are likely to grow after the CPI rose to its highest since hitting 3.9 per cent in February 2005.

Inflation in the first quarter was 2.7 per cent, up 1.5 points compared with the same period last year. China has said it wants to keep inflation under 3 per cent for the whole year after it increased 1.5 per cent in 2006.

The Shanghai stock market, which closed before the figures were released, fell 4.5 per cent in volatile trade amid speculation that stronger-than-expected economic data might push regulators to raise interest rates.

The market's key index had set record highs nearly every day the past two weeks.

Beijing has already raised interest rates three times in the past year and imposed investment curbs on real estate, the auto industry and other fields. But authorities say local leaders are defying controls and some are initiating their own investment projects.

A statement released with the data said China's economic imbalances, pressure on the environment and resources remained problems and that it would continue to strengthen and improve its macro controls.