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Old 29th June 2007, 05:39 AM
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Bloomberg - China's Economy May Grow at Fastest Pace in 12 Years

China's Economy May Grow at Fastest Pace in 12 Years (Update3)

By Josephine Lau
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A Chinese flag flies over the People's Bank of China

June 29 (Bloomberg) -- China's economy may expand at the fastest pace in 12 years in 2007 and inflation is likely to top the central bank's target, the People's Bank of China said in a research report.

Gross domestic product may grow 10.8 percent from a year earlier, the fastest pace since 1995, the central bank said in the Beijing-based China Securities Journal today. Consumer prices may rise 3.2 percent, the fastest pace since 2004 and more than the 3 percent target.

China is drawing closer to replacing Germany as the world's third-largest economy. The forecast underscores Premier Wen Jiabao's call this month for a ``moderate tightening'' after inflation jumped to a 27-month high, factory investment accelerated and the stock market drew warnings of a bubble.

``The Chinese economy's still firing on all cylinders,'' said Tai Hui, an economist at Standard Chartered Bank Plc in Hong Kong. ``These numbers suggest that real interest rates may be even lower than expected, highlighting the need for higher rates.''

China last year reported gross domestic product of 20.9 trillion yuan ($2.6 trillion). That compared with Germany's $2.9 trillion, Japan's $4.5 trillion, and the U.S.'s $13.3 trillion.

Cooling Stocks

Rising inflation means households are losing money on bank deposits, encouraging them to buy shares. The government is poised to scrap or reduce a 20 percent tax on interest income to try to cool the stock market.

The benchmark CSI 300 Index fell 1.7 percent as of 11:29 a.m. today after dropping 4.5 percent yesterday.

Two interest-rate increases this year failed to slow growth as record trade surpluses pumped cash into the financial system. The central bank has also ordered lenders to set aside larger reserves five times.

The economy grew 11.1 percent in the first three months and the second-quarter figure is due mid-July.

Wen signaled on June 14 that the central bank needed to raise interest rates or further curb bank lending. Consumer prices rose 3.4 percent in May from a year earlier because of soaring food prices and factory investment rose 25.9 percent in the first five months.

The government in February announced an 8 percent growth target for 2007.

That was ``only a signal by the government that it didn't want further acceleration in investment and economic growth,'' said Huang Yiping, an economist with Citigroup Inc. in Hong Kong. ``Everybody knew it would be higher than that.''

China's economy expanded 10.7 percent in 2006 while the consumer price index accelerated by 1.5 percent. Gross domestic product grew by 10.9 percent in 1995.

To contact the reporters on this story: To contact the reporter for fre jlau22@bloomberg.net
Last Updated: June 29, 2007 00:15 EDT
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Old 29th June 2007, 07:25 AM
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Re: Bloomberg - China's Economy May Grow at Fastest Pace in 12 Years

And what?

I have repeatedly told you that Western Economists just don't get it.

The problem with inflation is that it makes you uncompetitive and make companies unwilling to risk investment capital. That is not going to happen to China for at least ten years regardless of inflationary pressures. The problems will start to kick in only after China is the World's largest economy and are unlikely to come to a head until it is the size of the US and EU combined!
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