CHINA / National

China's economy roars 10.9% in first 6 months
(chinadaily.com.cn)
Updated: 2006-07-18 11:00

China's imports increased to US$367 billion in the first half year, rising more than 21 percent. Total imports and exports hit nearly US$800 billion, leaving China a trade surplus of US$61.4 billion.

China's economic growth figures are good news for world commodity markets which are enjoying record prices. However, some analysts worry that if the economy is speeding ahead at this rate, the Chinese government will react with further tightening measures that could introduce volatility in commodity prices over the medium term.


A China Daily reporter asks a question about the possibility of raising the interests rates at the press conference July 18, 2006.  

We forecast 10 percent gross domestic product growth this year but the quality is lacking: too much liquidity and over-investment have led to excess capacity in many industries," Lehman Brothers said in a research note.

"The recent tightening measures may have some short-term impact but to properly deal with liquidity, a stronger renminbi (yuan) and higher interest rates are needed," it added.

Zheng, the government spokesman, siad the government has not yet decided whether to increase interests rate in the third quarter of this year since the government is still waiting to see effects of the latest stringent monetary policy. 

Asked whether China would immediately jack up the interest rates again, Zheng said the central bank would make a correct judgement in line with relevant information.

A series of macro control measures have been launched by the government in the past months, such as the central bank's raising of the benchmark lending rates by 27 basis points in late April and the recent hike of reserve ratio for commercial banks by 0.5 percentage points.

"The macro control policies are showing their effects step by step, but we need to further observe the market before launching new decisions for further control measures, since some policies have been in operation even less than one month," said Zheng.

Zheng admitted that the rapid growth of money supply and lending has been a major problem in China's economic growth, and a stringent monetary policy must be adopted by the government to ease the soaring investment and lending.

In the first six months, China's import and export volume amounted to US$795.7 billion, rising 23.4% year-on-year or 0.2 percentage points faster than the same period last year.

Of this amount, Zheng said, the exports stood at US$428.6 billion, while imports were valued at US$367.1 billion. This meant China had a trade surplus of US$61.4 billion in the period.

And in the January-June period, China actually used US$28.4 billion of foreign investment, a drop of 0.5%. At the end of June, China's foreign exchange reserve amounted to US$941.1 billion, an increase of US$122.2 billion compared to the beginning of this year.

Zheng did not provide China's surplus with the United States. American manufactures are contending that China's currency was made artificially lower, making Chinese exports cheaper.

The spokesman called investment-driven growth pattern "unsustainable". He said economic growth is ultimately intended to improve the people's livelihood and increase consumption.


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