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China's economy soars 9.7% amid overheating signs
2004-04-15 00:00

China's economy grew by 9.7 percent in the first quarter of 2004 compared with a year earlier, the government said, warning that companies are investing at too fast a pace.

Asia's second-largest economy was fueled by spending on new plant and equipment in the first three months, with investment in fixed assets rising by a breath-taking 43 percent, according to the National Bureau of Statistics.

The bureau said the consumer price index (CPI) rose 2.8 percent in the first quarter, compared with 0.5 percent in the same period last year. The food price increased 7.1 percent, adding 2.4 percentage points to the growth of CPI.

 "It's a kind of bubble," said Andy Xie, a China economist with Morgan Stanley in Hong Kong. "If the government doesn't do anything, the bubble becomes bigger."

 The first quarter economic growth figure compared with a 9.9 percent expansion in the fourth quarter of last year and 9.1 percent for all 2003.

 Zheng Jingping, the NBS spokesman, said the economy had kept the momentum of fast growth since early 2004 but acknowledged there were "problems."

 "The scale of investment in fixed assets is too large and growth is too fast," he told a news briefing in Beijing.

 In announcing the figures, Zheng cited growth of investment in fixed assets as presenting problems in economic development.

 "The blind and repeated investment in low-level construction projects in certain industries and selected areas is not being put under effective control," he said.

 Investment in real estate projects, an area of particular concern among policy makers, was up by a staggering 41.1 percent in the first quarter, according to the NBS figures.

 "This leads to bottleneck restrictions in the supply of major raw materials, energy and transportation, and greater pressure for price rises," he said.

 China's gross retail sales were up 10.7 percent, or 9.2 percent when adjusted for inflation.

 The first quarter GDP figure was marginally above expectations and followed a slew of government statistics showing very brisk economic activity in the first three months.

 China's industrial output rose nearly 18 percent year-on-year in the first quarter, while imports surged 42 percent in the same period.

 The figures will likely be pivotal in determining economic policies in the months ahead.

 A vigorous ongoing debate is underway within the government and among independent economists about the health of China's growth, fueled by some breathtaking figures such as fixed-asset investment, suggesting too much money is flowing into the economy.

The International Monetary Fund joined the fray on Wednesday, saying in a report that the Chinese economy appears to be overheating and it was unclear whether authorities have it under control.

 "There are some signs of overheating," International Monetary Fund chief economist Raghuram Rajan said.

 "There is a tremendous amount of investment that is going on, credit has expanded tremendously and the Chinese authorities are trying to control this.

 "The jury is still out on whether they have brought it under control."

 Rajan said it was uncertain whether exchange rate flexibility would help to slow the economy, apparently referring to calls by some that China allow its currency to appreciate a little bit.

Chinese farmers' income rose an annualized 9.2 percent in the first quarter of the year after deducting price hikes. The farmers reaped 834 yuan (US$100.5) in per capita income in the three-month period. Over the same period the per capita income of urban residents rose 9.8 percent to 2,639 yuan (US$318), the spokesman said.

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