China’s Economy Grows 8.9%

China’s economy expanded at the fastest pace in a year as stimulus spending and record lending growth helped the nation lead the world out of recession., Bloomberg 10/21/2009 10:34:50 PM

Gross domestic product grew 8.9 percent in the third quarter from a year earlier, the statistics bureau said in Beijing. Separate reports showed industrial production and retail sales advanced at a faster pace in September.

Today’s figures may spur policy makers to consider how to withdraw record fiscal and monetary stimulus next year without triggering a slowdown in the world’s third-biggest economy. Qin Xiao, chairman of China Merchants Bank Co., this week warned that the measures risk inflating asset bubbles, saying it’s urgent that China shifts from a loose monetary policy.”

China’s cabinet said late yesterday that it will maintain stimulus measures even after the economy exceeded officials’ expectations for the first nine months of the year. The State Council also signaled that inflation concern will be an increasing focus of policymaking.

Surging auto sales helped industrial production to rise 13.9 percent in September from a year earlier, the fastest pace in more than a year, today’s data showed. Wolfsburg, Germany-based Volkswagen AG, the biggest overseas carmaker in China, sold a record 150,000 vehicles in the nation in September.

Urban fixed-asset investment climbed 33.3 percent in the first nine months from a year earlier, the statistics bureau said, as the $586 billion stimulus plan spurred the construction of roads and power plants. Retail sales gained 15.5 percent in September.

Consumer prices fell 0.8 percent in September, the smallest decline since prices started falling in February. Producer prices slid 7 percent.

The acceleration in economic growth means the government is more likely to meet its target of an 8 percent expansion this year to create jobs and maintain social stability.

The nation has countered an 11-month slide in exports with the stimulus package and a record $1.27 trillion in new loans this year. Policy makers also, from July last year, halted the yuan’s gains against the dollar, providing support to exporters battered by the contraction in overseas demand.

The Asian Development Bank has warned that keeping stimulus measures for too long risks diverting money into stocks and real estate, eroding bank asset quality and stoking inflation. Banking regulator Liu Mingkang warned yesterday of rising credit risks for banks and also told them to be ready for shifts in government policy, while the central bank said on Oct. 20 that inflation pressures are gradually building.

The 68 percent gain in the Shanghai Composite Index this year and a 73 percent increase in property sales in the first nine months highlight the risk of asset bubbles.

An exit may not be easy without unnerving investors: A plunge in July loan growth sent the benchmark stock index down more than 20 percent in August.

China’s Economy Grows 8.9%