China's economy grew by 9.7% year-on-year in the first quarter of 2004, pushed by a massive 43% rise in fixed asset investment. It is a blistering pace even by China's standards, much faster than the target set by the government, and raises the specter of overheating and inflation. The growth figure is all the more impressive since SARS appears not to have had an appreciable impact on the first quarter of 2003, meaning this year's Q1 figures represent real growth.
Speaking at the National People's Congress in March, Premier Wen Jiabao set a target of 7% growth for 2004. China, he warned, needed to avoid the risk of a boom and bust cycle – but the boom continues.
All told, GDP reached RMB 2.71 trillion (US$327.8 billion), fueled by rapidly growing fixed asset investment, much of it speculating on urban real estate. The latest growth rate numbers came just days after the People's Bank of China raised minimum reserve requirements for the third time in eight months in an effort to curb lending. So far, it seems, to little effect.
With growth running above 9% for the third straight quarter, economists have voiced concerns about overheating. Prices of key raw materials have spiraled upwards, inflation has reared its head, power supplies are at full stretch and the transport infrastructure is overloaded.
But officials do not seem unduly concerned. "The Central Committee of the Communist Party and the State Council have come up with a series of measures to slow the economy, and we believe they are sufficient," said Zheng Jingping, spokesman for the National Bureau of Statistics.
The latest growth figures coincided with a report from the International Monetary Fund, saying that China can sustain its rapid rate of growth but only if it commits to thorough reforms. Among China's top priorities, the IMF said, are the development of efficient markets for capital allocation and the strengthening of banks' balance sheets, making them more market-based.
Over-lending by China's banks remains a key source of concern, although one of the big four state lenders reported a drop in lending for the first quarter. Industrial and Commercial Bank of China said its outstanding loans rose US$9.38 billion between January and March, compared to an increase of US$15.62 billion in the same quarter of 2003.
Agricultural Bank of China, however, said its loans for the first quarter of 2004 rose at "an excessive pace" of 19.6% year-on-year. To stem that rise the bank said it would centralize credit approval for loans to the steel, cement and aluminum sectors – three sectors which are generating the most concern.