China’s recovery accelerated in the third quarter as a result of the government’s massive lending and investment programme, with the economy growing at 8.9 per cent compared with the same period last year.
The rapid rebound in the economy has started to raise concerns about asset price bubbles and inflation. However, officials said on Thursday the government was not ready to withdraw its aggressive stimulus.
“In the following period we will stick to continuity and stability in our economic policy,” said Li Xiaochao, spokesman for the National Bureau of Statistics. “According to my understanding, that means no change in policy.”
The continued caution in official comments may reflect the fact that the headline figure for growth, which is in real terms, could be overstating the extent of the rebound.
Third-quarter expansion was faster than the 7.9 per cent growth rate in the second quarter and brings the growth rate in the first nine months of the year to 7.7 per cent.
However, growth in nominal terms, before taking into account price changes, was 4.7 per cent in the first nine months, meaning deflation was responsible for a big part of the headline increase in GDP.
China has put together a huge stimulus programme to try and revive the economy, which, including loans by state banks, could be larger than 15 per cent of GDP this year.
In spite of Thursday’s caution, the government has given hints it might be starting to shift strategy. The State Council said on Wednesday it would focus on inflationary expectations, its first mention since the crisis started of potential price rises, while a government economist reportedly suggested a stronger currency could be used to limit price rises.
“Maintaining a loose policy thrust, we should use monetary, regulatory and exchange rate tools to implement structural fine-tuning,” said Chen Daufu, at the Development Research Centre.
Andy Rothman, at CLSA in Shanghai, said that while he expected no tightening before mid-2010, China had begun to implement an exit strategy, by gradually reducing its stimulus as private investment and consumption rose.
However, Ben Simpfendorfer, an economist at RBS in Hong Kong, warned: “There is now a risk that fiscal and monetary stimulus is left too loose for too long, especially as officials attempt to spur a stronger recovery in the private sector.”
Fixed-asset investment in urban areas, the main driver of economic growth in recent years, increased by 33.3 per cent in the first three quarters, up from 33 per cent in the January-August period. Infrastructure spending rose 52.6 per cent in the first nine months and social spending was 72.9 per cent higher.
Retail sales rose 15.5 percent in the 12 months to September, slightly up on August’s reading of 15.4 percent, while urban incomes increased 10.5 per cent in real terms, year-on-year, and rural incomes were up 9.2 per cent. The statistics bureau said a “bumper grain harvest” was expected and pork output was rising, which could help to limit future food price rises.
Estimates by private-sector economists for the expansion from the second to the third quarter ranged from 10-15 per cent.
Get alerts on Chinese economy when a new story is published