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China still on blistering pace

The nation's GDP grows 10.6% in the first quarter. Also, prices climb 8.3% in March.

April 17, 2008|Don Lee | Times Staff Writer

SHANGHAI — China's economy kept growing at a sizzling pace in the first quarter, but the nation's inflation rate also remained high, at above 8%, the government said Wednesday. The trends prompted officials to raise banks' reserve requirements for the third time this year to slow lending.

The government said China's gross domestic product, or total output of goods and services, expanded 10.6% in the January-to-March period compared with a year earlier. Although that was slightly slower than the 11.9% pace for all of 2007, analysts had expected a sharper decline because of weakening exports and severe snowstorms that disrupted production and travel this winter.

In releasing the data Wednesday, a spokesman for the National Bureau of Statistics said the government was having a "hard time" trying to keep the economy from overheating while containing inflation.

At current exchange rates, China is the world's fourth-largest economy. And the latest figures suggest the country will have continued robust demand for commodities such as oil, metals and grains. That's good news for commodity producers, but it also will help push up prices for consumers around the world.

Higher food costs have triggered protests in some countries, and inflation is of grave concern to Chinese officials. In March, China's consumer price index rose 8.3% from a year earlier. That was down from 8.7% in February but far above the government's target inflation rate of 4.8%.

Food prices, up 21% in March from a year earlier, accounted for most of the inflation in China. But consumers also paid 6.6% more for housing that month, and retail prices increased 7.8%, according to official data. Beijing has tried to ease the pain for consumers by freezing retail energy and utility rates and putting price controls on some foods.

Economists said they expected China's inflation rate to ease in the coming months, in part because of central government measures such as raising reserve requirements and interest rates and providing support to farmers to boost supplies. But China has less control when it comes to prices of commodities set in international markets.

"What is worrisome is imported inflation," said Zhu Baoliang, chief economist at the economic forecasting department of the State Information Center, a government think tank, citing the high prices of oil, gold and some other raw materials.

With inflation running high, analysts say, Beijing is likely to let the Chinese currency continue to appreciate at a good clip. The yuan has gained about 4.2% against the dollar so far this year, compared with almost 7% for all of last year. That has made Chinese goods more expensive for U.S. consumers, but it has helped China boost imports and reduce its trade surplus -- a contributor to inflation.

An appreciating yuan should aid U.S. companies shipping goods to China but will hurt American manufacturers in China because they must pay suppliers and workers more.

Many Chinese exporters, meanwhile, have complained that the stronger currency has come on top of higher production costs and softening demand in the U.S. and Europe, which have hurt their shipments and forced them to lay off workers.

For the first quarter, China's exports increased 21.4% while imports advanced 28.6%, resulting in a trade surplus of $41.4 billion, down 11% from the year-earlier period.

China did show strong increases in retail sales, up 20.6% for the quarter, as well as investments in fixed capital such as land, plants and machinery, which increased 24.6%.

Still, Stephen Green, an economist at Standard Chartered Bank in Shanghai, said that given the drag on the economy from trade, it was "almost impossible" to come up with a GDP expansion of 10.6% as Beijing reported.

Green said he believed China's actual first-quarter growth was less than 10% but that Beijing "smoothed out" the number to avoid a backlash from industry and local governments.

"A sharply slower GDP number would have triggered a lot more criticism from interest groups opposed to tight money," he said.

With higher-than-expected economic growth, Beijing now apparently has more latitude to apply measures to fight inflation.

"Seems they want to be able to show the steps on inflation that are needed have plenty of economic strength to support them," said Donald Straszheim, a China specialist at Roth Capital Partners in Los Angeles.


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