Houston Community News >> China High Decade of Growth

7/17/2006 -- CHINA'S roaring economy probably grew at its fastest in more than a decade during the second quarter, despite Government attempts to rein in excessive investment, official figures due today are expected to show.

The National Bureau of Statistics' half-year figures are expected to confirm recent leaks in the state-controlled media showing China's gross domestic product — the sum of all goods and services produced — hitting almost 11 per cent growth in the second quarter, accelerating from 10.3 per cent in the first quarter.

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Propelling the economy are investment in plant and equipment, up 35 per cent from a year earlier, and industrial production, up almost 20 per cent. The figures are likely to cheer commodity markets — already enjoying record prices — in the short term. But some economists caution that if the economy begins to career out of control, the Chinese Government will react with further tightening measures that may introduce wild swings in commodity prices over the medium term.

Massive amounts of cash flooding into China from its record trade surpluses are prompting so much investment the Government fears it will stoke inflation, drive up commodity prices and risk wasteful spending on excess capacity. A crash in the world's fourth-biggest economy may follow as prices and profits collapse.

Any slowdown in China's economy would affect Australia, which has enjoyed trade growth averaging 20 per cent over the past five years, and which is negotiating a free trade agreement. Australian exports to China, led by iron ore, alumina, wool, barley, coal, copper and oil and gas, soared 46 per cent last year. The start of the $25 billion liquefied natural gas exports to Shenzhen last month underscore the importance of a stable and high-growth Chinese economy.

China's policymakers and leaders have been debating the timing of further measures to prevent the economy overheating, with analysts divided on whether another interest rate rise or a faster appreciation of the yuan — the two measures that most pundits agree would be needed to have a significant cooling effect — are likely, let alone imminent.

Arthur Kroeber, managing director of economic research company Dragonomics in Beijing, said the robust growth figures meant the short-term outlook for commodities was "very bullish". "Where people get concerned is if there is a big pullback of the Chinese economy, but basically I think (that's) not (going to happen)," he said. "We are more or less at a repeat of 2004 when the economy was barreling along and there was some pullback before it settled down to 9-10 per cent growth, and now it's bounced back."

In Shanghai, Standard Chartered's senior economist Stephen Green said much of the investment was due to public infrastructure spending, but it was unclear what was happening in the private sector because of the lack of reliable data. "It may be slowing already (in the commercial sector)," he said. But the headlines from a GDP growth rate of almost 11 per cent would be sufficient to push up oil and other commodity prices.

(Contributed by Mary-Anne Toy)