Thursday, January 21, 2010

China's worryingly good results

"The challenge for the Chinese government now is to stave off inflation and ensure the stimulus goes into productive investment.

While the world economy is still trying to emerge from recession, China is showing signs of economic overheating. The nation's statistics bureau announced yesterday that gross domestic product rose 10.7% year-on-year in the fourth quarter of 2009, which brings economic growth for the full year to 8.7% and confirms that China is on course to overtake Japan and become the world's second-largest economy.

Industrial production jumped by 18.5% in the year to December, while retail sales increased by 17.5%, boosted by government incentives for purchases of cars and electrical appliances. The government said the gain in retail sales last year was the biggest since 1986.

The figure didn't come as a surprise since towards the end of last year nearly all sectors in China received significant financing from banks that hastily issued loans under the government's order to fund a massive stimulus package. The 12-month consumer price inflation rose to 1.9% in December.

Beijing's Rmb4 trillion ($585 billion) economic stimulus plan, announced in November 2008, generated more than 85% of the country's overall economic growth last year, partly because China was already in the midst of nationwide infrastructure improvements when the crisis hit."

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