China's Economy Expands 11.5% in Q3

China's economy, the biggest contributor to global growth, expanded 11.5 percent in the third quarter, adding pressure for faster currency appreciation and higher borrowing costs to curb inflation.

The increase in gross domestic product from a year earlier matched the median estimate of 26 economists surveyed by Bloomberg News and compared with an 11.9 percent gain in the second quarter, the fastest pace in 12 years. The statistics bureau released the figures in Beijing.

The CSI 300 Index of stocks fell the most in six weeks on speculation the central bank will raise interest rates for the sixth time this year. A record trade surplus helped drive a 26.4 percent surge in factory and property spending in the first nine months, raising the risk of idle plants and bad loans as the global economy slows.

``The central bank may raise interest rates immediately,'' said Wang Qing, chief China economist at Morgan Stanley in Hong Kong. ``We expect the yuan to appreciate more quickly over the next three months as part of measures to cool the economy.''

The CSI 300 fell 4.6 percent at the 3 p.m. close of trading. The yuan rose to close at 7.4820 versus the dollar from 7.4926 yesterday, heading for the biggest weekly gain in five weeks.

Central bank governor Zhou Xiaochuan said last week that steeper or more frequent interest-rate increases are possible and expressed concern at rising asset prices. The stock market added $2.5 trillion in value this year -- the equivalent of GDP in 2006 -- as the benchmark index climbed 161 percent.

Oil Prices, Housing Recession

The government confirmed today that inflation cooled in September to 6.2 percent from an almost 11-year high of 6.5 percent in the previous month after food-price gains slowed.

``The surging economy has stabilized, while rising prices have been brought under control through a combination of monetary, fiscal policies and administrative measures,'' said Li Xiaochao, the statistics bureau spokesman. Oil prices, the U.S. housing recession and weaker U.S. consumption pose uncertainties, he said.

The pace of consumer-price gains was still more than double the central bank's annual target of 3 percent and higher than the key one-year deposit rate of 3.87 percent, encouraging stock and property speculation.

``Inflation will begin to stabilize,'' said Ben Simpfendorfer, a strategist at Royal Bank of Scotland Plc in Hong Kong. ``But if grain prices start to rise again, there is a risk that inflation may accelerate.''

Factory Spending Climbs

Urban fixed-asset investment growth is outpacing the 24.5 percent gain for all of 2006. Investment accounted for 42 percent of GDP expansion in the first nine months, versus the 37 percent share for domestic consumption, the statistics bureau said. External demand made up 21 percent.

Industrial production increased 18.9 percent in September from a year earlier, the fastest pace in three months and up from 17.5 percent in August, the government said. Retail sales climbed 17 percent after gaining 17.1 percent.

China's taken six years to achieve 40 percent of a 20-year target of quadrupling per-capita GDP by 2020, spokesman Li said, citing an increase to 16,084 yuan this year.

A 69 percent surge in the trade surplus in the first nine months to $185.7 billion has flooded the economy with cash. It's also prompted calls by U.S. Treasury Secretary Henry Paulson and the Group of Seven nations for a stronger Chinese currency, which would ease trade tensions and the inflow of money by making exports more expensive.


10/25/2007 7:03:21 AM