Beijing – China’s economy continued to accelerate in the fourth quarter, as inflation is easing only slightly, showing that a series of cooling measures by Beijing over the last year have had only a limited effect.
Data released by the National Bureau of Statistics on Thursday put the pace of growth at 10.3 percent for the full year, up from 9.2 percent in 2009.
The pace of growth in the last three months of 2010 — 9.8 percent — accelerated from the 9.6 percent recorded for July-September quarter. Both the quarterly and annual figures were significantly above what analysts had expected.
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Taken together, the data and a number of other statistics in recent days supported the view of many economists who believe that the government will have to further tighten monetary policy, which could eventually lead the Chinese currency to appreciate against the dollar.
The American government would welcome a stronger renminbi and has been pushing China to allow its currency to appreciate more rapidly.
The exchange rate has been a major topic of President Hu Jintao’s visit to the United States this week.
And yet, while Beijing has allowed some appreciation against the dollar since mid-2010, the change has been small and is likely to remain so in the near future, analysts say.
The Chinese economy, buoyed by ample lending and significant state investment projects, powered ahead last year, overtaking Japan to become the world’s second-largest, after the United States.
Inflation, which has become a major concern for the authorities in recent months, came in at 3.3 percent for the full year, above the official target of 3 percent, while the data for December showed consumer prices were up 4.8 percent from a year earlier.
This was lower than the 5.1 percent inflation seen in November, but still a worrying one in the eyes of ordinary Chinese, who have been complaining of rising food prices, with some staples increasing 25 percent in the last few months.
Moreover, many economists expect the pace of inflation to pick up again in coming months because of adverse weather conditions and other seasonal factors like the Lunar New Year holiday in February, which triggers higher household spending. Rising wages also have fanned inflation pressures in recent months.
“It’s clear that the government policy stance has shifted” from worrying about growth to controlling inflation, said Arthur Kroeber, head of the economics research company Dragonomics, based in Beijing.
Over the last year, the government has taken a series of incremental steps to tighten growth and curb inflation. The so-called reserve requirement ratio for state-controlled banks — which effectively dictates the amount that lenders have to set aside against loans, limiting how much they can lend — has been raised seven times since early 2010, most recently on Jan. 14. The Chinese central bank also has nudged up interest rates twice in recent months.
However, these steps have had only a moderate effect on the pace of growth. Bank lending continues to surge, and on Thursday, the government reported that fixed-asset investment rose 23.8 percent in 2010, while property investment soared 33.2 percent.
“In sum, growth has not been significantly impacted by tightening measures. Instead, it continues to fuel inflation by boosting demand for both producer and consumer goods and services,” Ken Peng, an economist at Citigroup, commented in a note on Thursday. “This should give the green light for authorities to continue to tighten policy to contain inflation expectations.”
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Many analysts believe that another rate increase, a higher reserve ratio for banks and other measures aimed more specifically at sectors like housing could come within weeks.
Economists at HSBC, in a note published Thursday, predicted that the first rate increase of 2011 “could come as early as before Lunar New Year,” which begins on Feb. 3.
Speculation about higher interest rates helped send stock markets in China and elsewhere lower on Thursday. The Shanghai composite index sagged 2.9 percent, while in Hong Kong the Hang Seng index fell 1.7 percent.
Some analysts also say that one way to combat inflation would be to allow the Chinese currency to strengthen. A stronger renminbi would make it cheaper for Chinese companies to import raw materials and goods from abroad, helping keep down the price inflation of finished goods at home.
But analysts do not expect Beijing to move quickly on the exchange rate. Brian Jackson, an economist with the Royal Bank of Canada in Hong Kong, said in a note that he expected the renminbi to strengthen to 6.20 against the dollar by the end of the year. This would only be a small change from 6.59, at which the currency traded on Thursday.
Moreover, Mr. Kroeber of Dragonomics said that it was China’s economic performance, rather than American pressure, that could prompt any more marked strengthening.
“They can say, ‘You don’t have a lot of credibility running an economic system and we do,”‘ Mr. Kroeber said. “It’s according to their needs.”
Seen broadly, the numbers offer another insight into China’s changing economy. The government now seems able to avoid the boom-bust cycles, unlike in the 1980s and 1990s, that were prominent during the first decades of economic reform.
“The cycles have flattened out,” said Helen Qiao, an economist with Goldman Sachs, “so the swings are not so dramatic.”
Ian Johnson reported from Beijing, and Bettina Wassener from Hong Kong. Zhang Jing contributed research from Beijing.
© 2010 The New York Times Company
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