Can China constrain its “eye-popping growth”?

China's economic growth rate rose to 11.9% in the second quarter, well above the official 8% target. The Central Bank has responded swiftly with rate hikes, but will this be enough to prevent overheating?

Move over Germany. China's economic growth rate rose to 11.9% in the year to the second quarter, from 11.1% in the first quarter, well above the official 8% target. Goldman Sachs now expects Chinese growth of 12.3% in 2007, from an earlier forecast of 10.8%. This is the fastest rate since 1994 and enough to propel China from the world's fourth-largest economy to the third. With GDP of $2.7trn last year, China is already "breathing down Germany's neck", says Jane Macartney in The Times. But "it is not only the economy that showed eye-popping growth". The soaring cost of pork (up 70% this year) and grain pushed annual consumer price inflation to a 33-month high of 4.4% last month. Figures for industrial output, up 19.4% in the year to June, retail sales (16%) and investment in urban areas (28.5%) all beat projections.

China's central bank responded swiftly, raising the benchmark one-year lending rate 0.27% to 6.84% and the benchmark one-year deposit rate by the same margin to 3.33%; the third increase this year. The People's Bank of China referred to "controlling inflationary expectations", says Andrew Batson in The Wall Street Journal, suggesting it wants to stop workers from demanding higher wages as food prices leap. Meanwhile, the country's top planning agency said that preventing "overheating" is its "most important policy goal" for the second half of this year, says Bloomberg. It plans to use tax policies to "curb blind expansion in industries that consume large amounts of energy, pollute a lot and face overcapacity", adds Reuters.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up
MoneyWeek

MoneyWeek is written by a team of experienced and award-winning journalists, plus expert columnists. As well as daily digital news and features, MoneyWeek also publishes a weekly magazine, covering investing and personal finance. From share tips, pensions, gold to practical investment tips - we provide a round-up to help you make money and keep it.