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China's Economic Expansion Accelerates

July 18, 2006|From Bloomberg News

BEIJING — China's economy grew at the fastest pace in more than a decade in the first half as higher borrowing costs and government lending curbs failed to slow investment in factories and real estate.

Gross domestic product jumped 10.9% after rising 10.3% in the first quarter, the statistics bureau said in Beijing today. That's the fastest pace since 1995, when the economy was less than a third of its current size.

China has raised lending rates and told banks to curb credit to slow a surge in investment that Premier Wen Jiabao calls the biggest threat to the world's fourth-largest economy. The limited effect of those measures has added to speculation that the government will allow the yuan to strengthen to curtail money inflows that are being used to fund factories and luxury housing.

The measures taken are "not effective," said Huang Yiping, chief Asia economist at Citigroup Inc. in Hong Kong. "They won't work significantly unless the government lets the currency move more quickly."

China hasn't revised quarterly growth figures for before 2005 to reflect a nationwide economic census that added $285 billion to 2004 gross domestic product.

Fixed-asset investment in China's towns and cities jumped 31.3% in the first half from a year earlier, accelerating from 30.3% growth in the first five months, the statement said.

"Investment in fixed assets is excessive," said Zheng Jingping, a spokesman for the statistics bureau, at a news briefing. "Supply of credit is over-scaled." The government will strengthen economic controls to address "prominent problems" such as overinvestment, Zheng said.

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