China to overtake Japan as second largest economy

[General Duke]

Chinese economic growth surges again

 

China's economic growth surged to 11.9% in the first quarter, possibly giving Beijing room to allow its currency to rise, but analysts warned it faces growing pressure to cut back on stimulus policies and keep the world's third-largest economy from overheating.

 

The strong performance might allow a loosening of politically volatile currency controls by offsetting possible losses in export industries. Analysts expect Beijing to allow the yuan to rise some time this year, though President Hu Jintao and others have rejected US and other foreign pressure for a change, saying China will move at its own pace.

 

Inflation stayed low at 2.2%, below the government's target of 3% for the year, easing pressure for immediate interest rate hikes or other steps to cool the boom. But analysts said Beijing needs to act soon to head off mounting pressure for prices to rise.

 

"The tightrope is between pulling away stimulus which is still supporting the economy and tightening quickly enough to keep prices from getting out of control," said Tom Orlick, an analyst in Beijing for Stone & McCarthy Research Associates.

 

The latest data showed China is on the verge of overtaking Japan as the second-largest economy behind the United States. China's gross domestic product last year was $4.9tn (£3.2tn), just behind Japan's $5.1tn. Tokyo has yet to report first-quarter figures.

 

China was the second Asian economy to report first quarter growth, following Singapore on Wednesday, which said its gross domestic product expanded by 32.1%, its fastest rate in 35 years, adding to signs the region has rebounded from the global downturn.

 

But while Singapore's central bank responded by announcing its currency will be allowed to strengthen to keep inflation in check, Beijing has yet to make any moves on the yuan.

 

China has frozen its currency's value against the US dollar since 2008 to help its exporters compete amid weak global demand. Analysts say Beijing needs to allow a stronger yuan to defuse strains in its own economy and boost Chinese consumer buying power but will not act until trade and growth are solid – conditions that Thursday's data suggest are falling into place.

 

US manufacturers argue the yuan is undervalued by up to 40%, giving China's exporters an unfair price advantage and swelling its trade surplus. President Barack Obama has vowed to press for an end to systems that depress the value of currencies but has backed off his confrontational stance in recent weeks, possibly to allow Chinese leaders to act without looking as if they are giving in to foreign pressure.

 

Despite the strong growth figures, the Chinese government called for caution.

 

"The current economic situation is still extremely complex and we still face many problems in the process of recovery," the statistics bureau spokesman, Li Xiaochao, told reporters in Beijing. He said the government will maintain pro-stimulus policies but be "more flexible and targeted, according to the situation".

 

The surge in economic expansion was up from just over 6% in the same quarter a year ago and 10.7% in the final quarter of 2009. It was supported by a 19.6% rise in industrial output over a year earlier and a nearly 26% rise in investment in factories and other fixed assets.

 

Chinese leaders face a challenge in checking inflation and curbing reckless, stimulus-fuelled spending on unneeded factories and other assets that could leave a mountain of bad debts.

 

Beijing reported its first monthly trade deficit in six years for March as imports surged, reflecting China's faster recovery from the global crisis than its key trading partners.

 

And lending by Chinese banks fell 43% in the first quarter from a year earlier as the government tightened credit controls while trying to wind down its stimulus.

[Coloow]

Yeah, Germany hit the dust a few months ago and soon it will surpass the USA. The chinese economic wonder is worrying specially given their clout in Africa and supporting dictators.