China’s growth probably exceeded the economy’s speed limit in the fourth quarter, escalating pressure on Premier Wen Jiabao to withdraw stimulus measures even as the government seeks to strengthen domestic demand.
Gross domestic product rose 10.5 per cent from a year before, according to the median of 41 forecasts in a Bloomberg News survey for the release scheduled for tomorrow. A pace of 10 per cent or higher is excessive, monetary policy committee member Fan Gang said in November, citing the risk of asset bubbles.
The acceleration reflects an unprecedented $586 billion fiscal plan and a credit-fueled investment boom that shielded China from the world recession. Wen may this year shift spending to education and health — away from infrastructure — and the central bank will implement a “gradual” monetary tightening to achieve a sustainable expansion, according to HSBC Holdings Plc.
“China is embarking on a fundamental transformation in its growth model, toward greater domestic consumption that is likely to make it the world’s largest consumer by 2020,” said Tao Dong, chief Asia-Pacific economist for Credit Suisse AG in Hong Kong. “In the short term the government must deal with excess liquidity and a property-market bubble.”
The fourth-quarter number is affected by the comparison with a year earlier, when the financial crisis curbed growth. Wen yesterday told the State Council that the government will focus on month-on-month data when reviewing economic policies.
Wen’s published comments didn’t refer to a relatively loose monetary policy or a proactive fiscal stance, signaling an official end to the government’s “emergency mode” since the fourth quarter of 2008, Bank of America-Merrill Lynch said in an e-mailed note last night.
Retail sales increased the most since 1986 last year, after adjusting for consumer price changes, with China becoming the biggest automobile market, overtaking the US. The world may again this year count on China as the biggest engine of growth, with the International Monetary Fund projecting it to expand 9 per cent, compared with 1.3 percent for advanced economies.
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Chinese GDP growth is anticipated to have accelerated for the third straight quarter, from an almost 10-year low of 6.1 per cent in January-to-March, the survey indicates. The December end to a 13-month slump in exports reduced the drag from the contraction in global trade last year.
Hong Kong billionaire Cheng Yu-tung’sNew World Department Store China Ltd. plans to expand in China this year and Ford Motor Co and Volkswagen AG are also boosting investment to tap the rising demand.
The strengthening rebound has sparked inflation concern. Consumer prices climbed 1.4 per cent in December from a year earlier, after a 0.6 per cent gain in November, the median forecast in a Bloomberg News survey indicates. The report is also scheduled for tomorrow.
Industrial output may have climbed 19.6 per cent in December from a year earlier, the most in 2 1/2 years, and urban fixed- asset investment may have gained 31.5 per cent last year, according to the survey.
China’s property market is also surging. Sales jumped 76 per cent to 4.4 trillion yuan in 2009. Residential and commercial real-estate prices in 70 cities climbed 7.8 per cent from a year earlier in December, an 18-month high.
China Overseas Land & Investment Ltd, owned by the nation’s construction ministry, said this month that 2009 property sales rose 80 per cent and developer Evergrande Real Estate Group Ltd said January 5 contracted sales jumped more than 400 per cent.
“The government is walking a tightrope, balancing growth and concerns about property prices and inflation,” said Lu Ting, a Merrill economist in Hong Kong. “I expect the economy to overheat” by mid-year, he said.
International investors will probably pour as much as $30 billion a month of speculative capital into China in the first half, lured by the nation’s growth and expectations for the yuan to appreciate against the dollar, according to Lu.
The government may let the yuan gain starting in the third quarter, Donghyun Park, a senior economist at the Asian Development Bank, said in an interview in Tokyo yesterday. Authorities have kept the currency at about 6.83 per dollar since July 2008 to help exports after letting it appreciate 21 per cent over three years.
Twelve-month non-deliverable yuan forwards indicate that traders expect the Chinese currency to gain 3 per cent over the next year.
The People’s Bank of China may also raise its benchmark interest rate in coming months, economists forecast. The central bank last week ordered lenders to set aside more money as reserves and has also guided bill yields higher at auctions this month. The PBOC yesterday pushed the one-year bill yield to a 14-month high, the latest move in a campaign to restrain credit growth that reached a record 9.59 trillion yuan last year.
Credit Suisse’s Tao says a loan quota may be introduced before the end of this quarter, banks’ reserve requirements will keep rising, and aggressive lenders may be required to buy central-bank notes at “punitive” rates.
Liu Mingkang, chairman of the China Banking Regulatory Commission, confirmed today in Hong Kong that his agency has asked some banks to limit lending after they failed to meet requirements including capital.
Policy makers will probably shift spending this year under the 4 trillion yuan fiscal stimulus plan to education, health care and social security, with building projects falling to about 40 per cent of the total from more than 70 per cent, Qu Hongbin, HSBC’s chief China economist in Hong Kong, wrote in a note this month.