Manufacturing News

China's Economy Grew 10.2% in First Quarter, Hu Says

The figure, given by Hu in Beijing today, is higher than every forecast in a Bloomberg News survey of 25 economists and compares with 9.9 percent growth in the fourth quarter.

April 16 (Bloomberg) -- China's economic growth accelerated to an estimated 10.2 percent in the first quarter, President Hu Jintao said, exceeding economists' expectations as manufacturing investment and exports surged.

The figure, given by Hu in Beijing today, is higher than every forecast in a Bloomberg News survey of 25 economists and compares with 9.9 percent growth in the fourth quarter. The Bloomberg survey had a median estimate of 9.6 percent.

The acceleration may prompt the government to tighten lending and investment restrictions to prevent bad loans and overcapacity that could cause a sharp slowdown in the world's fastest-growing major economy. Faster growth may also intensify U.S. calls for China to let its currency strengthen, as Hu prepares to meet U.S. President George W. Bush in Washington this week.

``Frankly speaking, we do not want to pursue excessively rapid economic growth,'' Hu said during a meeting with former Taiwan nationalist party leader Lien Chan that was broadcast live on television. ``What we are seeking is efficiency and quality of development.''

The government is scheduled to officially release first- quarter economic data on April 20, the same day Hu and Bush meet at the White House for talks that are likely to be dominated by trade and currency issues.

China's economy grew 9.9 percent last year, leapfrogging the U.K. and France to become the world's fourth largest. The U.S. trade deficit with China widened 25 percent to $201.6 billion last year, the U.S. Commerce Department said on Feb. 10.

Investment Controls

Premier Wen Jiabao told a meeting of China's cabinet on April 14 that the government may tighten controls on credit and investment growth and restrain land use after reviewing the country's first-quarter economic performance.

China's growth over the past three years has been driven by an investment boom that helped send raw material prices to record highs, strained power supplies and led to transport bottlenecks. The government is seeking to boost domestic consumption to reduce the economy's reliance on exports and investment for growth.

``The difficulty for the government is how to slow investment and credit without checking overall growth,'' said Tai Hui, a Hong Kong-based economist with Standard Chartered Bank. ``Over the past two years we have seen the government take measures that have sometimes been ineffective or that have had to be reversed after a brief period.''

China has restricted investment in steel, automaking, real estate and other industries since 2004. Investment accounted for about 60 percent of China's growth last year and is still likely to drive expansion this year and next, the Asian Development Bank said in a report this month. China's spending on factories, roads, bridges and other fixed assets climbed 25.7 percent last year.

Trade Surplus

``There are some obvious problems in the economy that we need to pay attention to,'' Premier Wen said in a report of Friday's meeting posted on the government's Web site. ``The main problems are fixed-asset investment is growing too fast and money supply and loans are also high. The structure of the nation's imports and exports is also causing problems.''

China's trade surplus widened 41 percent from a year earlier in the first quarter to $23.1 billion, after tripling last year to a record $102 billion.

The U.S. government has been pressing China to loosen controls on the yuan, under pressure from lawmakers who say the currency is kept artificially cheap to spur exports. Bush on April 11 called on Hu to ``make a statement on his currency.''

The yuan, a denomination of China's currency, the renminbi, has gained 1.1 percent since the government revalued the currency by 2.1 percent and ended a decade-old peg to the dollar on July 21. China will make changes to its currency regime gradually, Wei Benhua, deputy director of the State Administration of Foreign Exchange, said at a conference in Vienna on April 8.

Money Supply

China's money supply rose 18.8 percent in the year through March, barely slowing from a two-year high. New yuan lending in the first quarter rose 70 percent from a year earlier to 1.26 trillion yuan, half the central bank's growth target for the year.

``The acceleration of loan growth will add further fuel to the current growth momentum and we see upside risks to our growth and inflation forecasts this year,'' Hong Liang, China economist at Goldman Sachs Group Inc., wrote in an April 14 note. ``The economy is accelerating on all three cylinders.''

China needs to keep the economy growing fast enough to provide 25 million jobs in towns and cities this year, according to Asian Development Bank forecasts. At the same time, the government needs to curb growth in industrial capacity that's already causing gluts, slumping prices and falling profits.

Beijing Shougang Co., China's second-biggest producer of steel used in construction, said on April 15 its first-quarter profit fell 65 percent because of lower prices and higher raw materials costs. China's steel prices fell 31 percent last year.

``The biggest danger is overcapacity that could lead potentially to deflation and downward pressure on prices,'' said James McCormack, head of Asian sovereign ratings at Fitch Ratings in Hong Kong.

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