THE Chinese economy accelerated in the December quarter, heralding a huge boost to Australian export prices and pressuring the Reserve Bank to continue raising interest rates.
China’s National Bureau of Statistics yesterday said the economy grew 10.7 per cent in the year, driven by infrastructure investment.
While the bureau does not provide a quarterly breakdown of the growth figures, its annual figures imply that the Chinese economy ended the year at a blistering pace.
”It was a very strong quarter and growth could be around 13 per cent on an annualised basis,” said Stephen Joske at the Economist Intelligence Unit in Beijing.
“This would explain why they are quickly pushing on with the tightening measures.”
Chinese demand for construction materials has caused iron ore and coal spot prices to surge.
Chris Richardson, a director of Access Economics, said it was plausible that iron ore and coal contract prices could rise as much as 30 per cent this year, which would push the terms of trade (ratio of export to import prices) up by 10 per cent.
“If the glory days come back, then the short-term pay off could provide up to $27 billion in extra national income, and it could arrive fast,” he said.
This compares with $20 billion injected in 2008-09, which was the largest terms of trade boost during the previous China boom.
Chinese policymakers have now turned their focus from supporting growth to preventing overheating.
Chinese banking regulators have recently frozen lending at some banks and increased capital reserve ratios to control consumer price inflation, property prices and bad loans.
Annual inflation jumped from 0.6 per cent in November to 1.9 per cent in December, and is expected to rise a similar amount this month.
“My first worry is how to control price rises while promoting economic growth; this is my first concern,” said Ma Jiantang, director of the National Bureau of Statistics.
“Another concern that is shared by us all is that the price of assets is probably growing too fast, for instance the price of real estate in some cities is growing too fast.”
Observers say recent tightening measures are a good sign that policymakers are moving early to prevent more late and drastic action, as China does not have a happy record of engineering graceful economic slowdowns.
The World Bank yesterday sharply revised up its forecast of global economic growth, predicting 2.7 per cent this year, up from 2 per cent, climbing to 3.2 per cent next year.
The forecast signals a return to healthy global growth after last year’s unprecedented contraction of 2.2 per cent.
The bank report said the worst phase of the crisis was largely in the past but it cautioned that ”many challenges remain and much uncertainty continues to cloud the outlook”.
Treasurer Wayne Swan said it was good news that the global economy appeared to be moving towards recovery and evidence of the success of stimulus measures around the world.
”However, the World Bank has cautioned that the global recovery will be weak,” he said.