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China's economy surges on

Jan 25 2007

China's economy surges on

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Economy

By Agencies

Officials say over-investment in factories and real estate poses risks for the future

China's economy grew at 10.7 per cent in 2006, but risks being strained by over-investment and excessive dependence on exports, a leading economic official has said.

The latest data released on Thursday was China's highest annual growth rate in 11 years and gave Asia's second largest economy its fourth straight year of double-digit growth.

Xie Fuzhan, commissioner of the National Bureau of Statistics, said the figures showed the economy continued to face several "outstanding problems", particularly a failure to boost consumer spending.

He said China faced an "irrational relationship between investment and consumption".

Booming China

GDP: up 10.7 per cent in 2006

Total economic output: $2.7 trn

Investment in real estate: up 21.8 per cent

Trade surplus: up 75 per cent to $177.5 bn

Incomes (urban): up 10.4 per cent

Incomes (rural): up 7.4 per cent

Industrial output: up 12.5 per cent

Retail sales: up 13.7 per cent

Inflation: up 1.5 per cent

In 2006, Xie said, investment in real estate and other assets surged, while consumer spending grew far more slowly.

According to the bureau's statistics fixed asset investment rose 24 per cent for 2006, while retail sales, a main gauge of consumer spending and sentiment, increased 13.7 per cent.

Restrictions

The data suggests government efforts to cool off an investment boom and reduce China's reliance on exports by boosting domestic consumption still have a long way to go.

Worried that runaway spending could spark inflation or a debt crisis, the central government has raised interest rates twice since April, repeatedly tightened bank credit and imposed restrictions on investment in real estate, vehicle factories and other projects.

It has also cracked down on wasteful investments, naming and shaming local officials it says have failed to comply with orders to tighten up planning procedures and observe tougher environmental protection criteria.

Unveiling the 2006 data at a press conference in Beijing, Xie emphasised that while there were risks he did not believe the economy was yet in a state of overheating.

'Fast development'

Looking ahead he said he expected the economy to continue "steady and comparatively fast development" in 2007.

Nonetheless, Xie said, government efforts to boost consumer spending were "still not seeing significant results".

"We're finding it hard to meet the target of changing our economic structure."

Other problems, he said, included a growing imbalance of payments and excess liquidity in the banking system.

China's global trade surplus – the measure of money going into the country minus money going out, jumped by a record 74 per cent in 2006 to $177.5 bn.

If China's economy continues to keep growing at the same pace it could leapfrog Germany by 2008, becoming the world's third largest economy after the US and Japan.