Overheating concerns

16:36, April 13, 2010      

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Amid optimistic forecasts that the Chinese economy may have expanded by more than 11 percent in the first quarter, policymakers will most certainly take comfort in the country's growth figures that are scheduled for release later this week.

While the country's trade surplus shrank by about 80 percent over the same period last year, a double-digit GDP growth indicates that the country's fixed-asset investment and domestic consumption have together generated even more growth momentum in the first quarter of this year than they did in previous quarters, when the country was going all out to fight the worst global recession in decades.

By tapping into the huge potential of its domestic demand, China is well poised to sustain its stronger-than-expected economic recovery.

However, while the current consumer price index may not point to imminent inflation, policymakers should be aware of the looming perils of rapid growth.

The country's consumer inflation remained as mild as below 3 percent in the past quarter, estimates showed. But such a "so far, so good" consumer price level is not enough to calm growing concerns about overheating.

According to customs figures, the rise of prices has played a much bigger role than the increase in the volume of imports of raw materials in accelerating China's import growth in March, resulting in the first monthly trade deficit in the past 70 months.

Under such circumstances, a domestic investment boom will likely fuel more imported inflation to choke the country's sustainable growth.

First quarter growth figures may look well, but that only proves the success of the country's previous stimulus package. What China and the world economy need is a successful exit strategy.

Source: China Daily


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