China's GDP grows 10.7 percent in first three quarters

China's gross domestic product (GDP) grew by 10.4 percent in the third quarter of 2006, down 0.9 percentage points from the second quarter, the National Bureau of Statistics (NBS) announced Thursday.

"The tendency of the economy to grow a bit too fast is being brought under control," said NBS spokesman Li Xiaochao.

The growth in the first three quarters was 10.7 percent, down 0.2 percentage points from the first half of the year.

The industrial sector reported growth of 13 percent, compared with 4.9 percent for the agricultural sector and 9.5 percent for the services sector.

Fixed asset investment totaled 7.19 trillion yuan (910 billion U.S. dollars) in the first nine months, up 27.3 percent from the same period last year, but 2.5 percentage points down from the first quarter.

China's foreign reserves stood at 987.9 billion dollars at the end of September, a rise of 169 billion dollars from the beginning of the year.

The volume of foreign trade surged to 1.27 trillion dollars, up 24.3 percent on the first three quarters of last year.

Retail sales in the first three quarters totaled 5.5091 trillion yuan, up 13.5 percent year on year.

Despite the two-digit economic growth, the consumer price index only inched up 1.3 percent in the first nine months.

Runaway investment has been a major headache for China's economic planners in the last few months. The country's urban fixed asset investment posted growth of 31.3 percent in the second quarter, the highest in three years.

The excessive growth in investment is accompanied by a similar growth in bank loans. Chinese banks approved new loans worth 2.3 trillion yuan in the first half, against a planned quota of 2.5 trillion yuan for the whole year.

With the economy in danger of overheating, the government has raised the central interest rate as well as deposit reserve requirements for commercial banks.

The government has also published new land sale rules, raising land use taxes as well as compensation to those who lose their land to developers.

High-powered teams were sent to provincial cities to whip into line defiant local officials, whose obsession with high GDP figures has led them to support many illicit investment projects.

In August, the State Council, the cabinet, publicly criticized Yang Jing, head of the Inner Mongolia government and his two deputies, for ignoring macro-control policies and failing to stop an illicit thermal power plant involving 2.9 billion yuan of investment.

A month later, a senior leader from Henan Province in central China, was sanctioned for failing to stop the construction of an unapproved university campus occupying nearly 1,000 hectares of land in Zhengzhou, the provincial capital.

Despite slowing investment, analysts have warned that the government must keep up the pressure on investment to prevent it from bouncing back.

"The effect of the macro-control policies should not be overestimated. Preventing the economy from overheating should remain the top policy priority for the next 12 months," said Fan Jianping, an economist with the State Information Center, a think tank under the NBS.

The pressure on China to appreciate the yuan is another thorny issue for the economy.

The fact that the yuan has inched upward in recent months has dissuaded the United States, China's largest trade partner, from imposing a 27.5 percent punitive tariff on Chinese goods. However, the pressure generated by the country's constantly rising foreign reserves is still intense.

To address the issue, the government has eased rigid controls on foreign exchange, allowing businesses to keep a larger share of their foreign income and encouraging overseas financial investment in the form of qualified domestic institutional investors (QDII).

The government has also cut tax rebates on dozens of export goods in an apparent bid to check the growth in exports.

This effort seems to be paying off, as exports grew 26.5 percent in the first three quarters, down 4.8 percentage points from the same period of 2005.

The overall trade surplus nevertheless hit a new high of 109.85 billion dollars at the end of September, higher than the 101.88 billion dollars for the whole of 2005.

Li Xiaochao attributed this partly to China's low labor costs. Despite rising wages, labor costs are just two to three percent of the level in developed countries.

Other factors included China's status as a major destination for foreign investment, and the free movement of goods and services resulting from globalization.

NBS figures also show that the disposable income of China's urban residents increased 10.0 percent in the first nine months, 0.2 percentage points higher year on year. Cash income for farmers grew by 11.4 percent in the same period.

"We are very pleased with the figures for farmers' income. This is really good news. The government has been paying great attention to this issue... This is the third straight year in which a two-digit increase in farmers' income has been recorded in the first three quarters," he said.

A recent report by the Chinese Academy of Social Sciences, a top government think tank, stressed the need to further shore up people's incomes, so that economic growth is less dependent on investment and exports and more on consumption.

"The effect of macro-control policies needs to be further consolidated... (We) have to continue strengthening macro-control polices, restructuring the economy and making changes to our growth model," said Li Xiaochao.

Source: Xinhua



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