China's growth rate reaches highest level in more than a decade

Growth in the Chinese economy has accelerated to a 12-year high, according to official figures yesterday that will fuel fears the Asia tiger is overheating.

Annual GDP growth surged to 11.3 per cent in the three months to June, up from 10.3 per cent in the first quarter.

Economists said the growth rate was the fastest since 1994. China's GDP grew by 10.9 per cent in all of 1995 and by 13.1 per cent in 1994.

The figures showed steps taken so far to tighten monetary policy by raising the exchange rate and constraining credit had little impact on the red-hot growth rates in the world's fourth-largest economy.

"We expect the authorities to take additional tightening measures in the coming months," Qing Wang, an economist at Bank of America in Hong Kong, said.

That could include allowing faster appreciation of the yuan, reducing the VAT rebate to exporters, and raising interest rates by another quarter point.

The figures showed that growth was still being driven by investment, which rose at an annual rate of almost 30 per cent.

However, growth in exports actually slowed while imports picked up, indicating that net trade added just 1 percentage point to growth.

Julian Jessop, the chief international economist at Capital Economics in London, said there was no evidence of a "hard landing" for the economy.

"The experience of the mid-1990s is quite encouraging," he said. "Beijing managed to engineer a soft landing then, even though inflation had spiralled to a peak of nearly 28 per cent."

Beijing has already started to apply the policy brakes. In recent weeks, the central bank has raised the cost of one-year bank loans by 0.27 percentage points, reined in lending to certain "hot" sectors and required banks to hold more deposits in reserves instead of lending them out. Planners have also cracked down on speculative property investment.

But analysts said the economy had built up such a head of steam that, barring a dramatic policy tightening that would be out of character for China's cautious policy makers, growth was unlikely to slow much in the rest of the year. "The longer the investment boom continues, the harder the fall when it does eventually come," acknowledged Mr Jessop.

China has let the yuan rise just 1.4 per cent since revaluing the currency by 2.1 per cent a year ago and untying it from a decade-old peg to the dollar to float within managed bands.

Zheng Jingping, the statistics office's spokesman, acknowledged that investment and credit growth were excessive but ruled out another one-off revaluation.

"People who want to wager on a yuan appreciation and so on are doomed to fail," he told Reuters.