By Andrew Batson and Esther Fung
15 April 2010
China’s economy expanded 11.9% from a year earlier in the first quarter of 2010, the government said Thursday, a strong result that highlighted both the strength of the recovery in the world’s third-largest economy and the increasing risks of overheating.
In a statement issued before the latest data were published, China’s State Council said the nation’s economic recovery has been further consolidated in recent months, but there are still prominent problems and risks to deal with. Top of the list is an increasingly frothy real-estate market: property prices in China grew at the fastest pace in nearly five years in March, according to official figures issued Wednesday.
The national property-price index rose 11.7% in March from a year earlier, accelerating from February’s 10.7% rise, the National Bureau of Statistics said. The increase was the largest since July 2005, when the bureau switched to an index based on data in 70 cities, rather than 35.
The State Council repeated its promise to "resolutely curb" excessive property price rises by restricting speculative purchases while increasing the supply of land for housing and government supports for low-income housing. But analysts said the measures taken so far appear to be insufficient, and the latest economic data will likely reinforce official resolve to take further measures to cool down growth, economists said.
The real-estate sector has become an increasingly important driver of China’s economy as the government seeks to promote home ownership, and was given a huge boost by the flood of bank lending unleashed by the leadership’s stimulus program. The surge prices in major cities also threatens to make property unaffordable for many, and Beijing has for several months sought to contain prices and ward off an asset bubble.
The growth in the first quarter’s gross domestic product accelerated from the 10.7% gain reported in the fourth quarter of 2009, and was faster than the 11.5% median forecast of economists surveyed by Dow Jones Newswires. But the State Council cautioned against excessive optimism, noting that the fast rate of growth in the first quarter is largely due to the low base of comparison a year earlier, when the impact of the global financial crisis led to China’s slowest quarterly expansion in nearly two decades.
"A number of factors driving up prices are appearing, strengthening expectations of inflation. The problem of excessive increases in housing prices in some cities is particularly acute," the State Council said in its statement issued after a quarterly meeting on the economy, headed by Premier Wen Jiabao.
The fastest housing-price increases in March were in the southern island province of Hainan, a popular tourist destination. Prices in the provincial capital Haikou rose an average 64.8% from a year earlier, while those in the resort city of Sanya jumped 57.5% during the period. Prices in Guangzhou, the capital of the southern province of Guangdong, rose 20.3%.
Broader inflation risks have been subdued so far, with the consumer price index rising 2.4% in March from a year earlier, down from February’s 2.7% rise which was boosted by seasonal factors. Still, inflation is close to Beijing’s 3% target, so additional measures may yet be needed to keep price rises in an acceptable range.
To cope with those issues, China’s government has in recent months been moving to dial back the amount of new lending the banking system delivers to the economy, though officials still want to make sure financing remains supportive. Economists expect the central bank will soon start raising interest rates for the first time in two years to combat rising inflationary pressures.
Banks started to shrink their new lending significantly in February and March of this year, after the government set a smaller target for new loans this year. Fixed-asset investment in urban areas, an important measure of capital spending, has also been slowing from over 30% growth last year. Investment was up 26.4% in the January-March period, down from 26.6% in the January-February period.