China's growth hits 11.4% but price rises cause alarm

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The Chinese economy grew by a sizzling 11.4 per cent last year, the fastest rate for 13 years, but prices are rising too, and there are fears that dissatisfaction about the high cost of staple foods such as pork and cooking oil could derail the growth juggernaut.

Figures showing the strength of the Chinese economy come after a week of recessionary talk elsewhere, and analysts are asking how long China can keep growing at double-digit rates – the rest of the world now needs the Chinese economy to keep growing to underpin global growth.

Keeping prices under control in the country of 1.3 billion people remains the key political and economic challenge for China's rulers.

The statistics office said that GDP rose 11.2 per cent in the last quarter of 2007, down from 11.5 per cent in the third quarter, while inflation slowed to 6.5 per cent pace in December – down from an 11-year-high of 6.9 per cent the previous month, but still twice what the Central Bank had targeted.

The statistics bureau said: "The economy still faces outstanding problems, including the risk of shifting from growing rapidly to overheating, and rising inflationary pressure."

Consumer prices increased by 4.8 per cent last year, three times the rate seen in 2006, and is forecast to rise by 5 per cent this year. The high oil price will badly affect inflation.

The price of meat, poultry and related products soared by 31.7 per cent in 2007. The rising price of pork, following a cull of pigs after an outbreak of blue-ear disease last year, has seen people raising pigs in their front rooms, while key cities have been ordered to stockpile cooking oil and the government has introduced price restrictions on other foodstuffs. There have been stampedes over eggs.

To maintain economic growth on its current trajectory, the government needs to maintain stability, and it is mindful of the fact that the 1989 democracy protests in Beijing and other cities was preceded by a sharp rise in food prices.

Of particular concern for Beijing is the fact that consumer prices rose more quickly in the countryside than in cities last year -- the wealth gap between rural and urban incomes widened. At the same time, disposable incomes rose strongly – up 17.2 per cent in the rich cities of the east and southern coasts, and up 15.4 per cent in the countryside.

Analysts believe that China will not be overly affected by what happens in the US. Jonathan Anderson, global emerging markets economist at UBS in Hong Kong, said: "Historically, China has never been 'coupled' with the US. So a better question is whether the economy is getting more exposed over time. Our answer is 'a bit'... but not enough to change the fundamental conclusion that China will still be well insulated at home in a US recession scenario." He forecast growth of 10 per cent this year and 9.5 per cent next year.