Chinas economy grows 9.5%

April 20 | Updated: Apr 21 2005, 05:30am hrs
Chinas economy, which accounted for a 10th of global growth last year, expanded more than expected in the first quarter as exports and investment surged.

Gross domestic product rose 9.5% from a year earlier to 3.14 trillion yuan ($379 billion), matching the fourth-quarters gain, the National Bureau of Statistics said in a statement released in Beijing. That exceeded the median 9% gain forecast in a Bloomberg News survey of 11 economists. Fixed- asset investment rose 23%.

Companies including Motorola and Quanta Computer are expanding factories in China to make cell phones and notebook computers for export to the US, Europe and Asia. Policy makers may raise interest rates or tighten lending curbs to prevent expansion picking up in the worlds fastest-growing major economy, according to investors including Geoff Lewis.

The government would not want to see GDP growth accelerate from here, said Lewis, the Hong Kong-based head of investment services at JF Asset Management Ltd., which holds $57 billion of mostly Asian assets. We might see that policy is tightened a little.

The Shanghai Composite Index, which tracks yuan-denominated A shares and foreign-currency B shares on the citys stock exchange, dropped 15.79, or 1.3%, to 1184.11 at the 11:30 am local time break.

Investment is still too high and far exceeds the governments target, said Li Yan, who helps manage the equivalent of $3.62 billion with Harvest Fund Management Co. in Shanghai. There is pressure on interest rates to increase.

Fixed-asset investment, which reached 1.1 trillion yuan in the first quarter, is too large, causing shortages of coal, oil, electricity and transport, said Zheng Jingping, a spokesman for the statistics bureau. New fees will be introduced to curb property speculation, he added.

Premier Wen Jiabao last year ordered banks to curb lending to industries including real estate, steel and autos after surging fixed-asset investment drove raw-materials prices higher and strained power supplies. Producera prices rose a record 8.4% in October and blackouts in 2004 affected 24 of Chinas 27 provinces and its four biggest cities.

Inflation averaged 2.8% in the first quarter, less than the governments 4% limit, and producer prices increased 5.6%, Wednesdays statement said. Real-estate investment rose 27% to 232 billion yuan. Investment is still very strong, said Andy Xie, an economist at Morgan Stanley in Hong Kong. He predicts the central bank will raise its benchmark one-year lending rate to help damp industrial expansion.