China's GDP Soars by 9.7 Percent From One Year Prior, Inflation High Too

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BEIJING - China's economy grew 9.7 percent in the first quarter of 2011 from a year earlier, while consumer inflation hit a 32-month-high of 5.4 percent in March.

COMMENTARY:

BRIAN JACKSON, ECONOMIST WITH ROYAL BANK OF CANADA IN HONG KONG:

"Not much of a surprise in the data, though the activity numbers are perhaps a little stronger than expected, with little evidence to date that rate hikes, a stronger currency, and higher oil prices are having much of an impact on growth.

"Inflation, of course, is the main issue in the short-term -- we think price pressures will ease in the second half of the year, but there is still more upside in the next few months, and the risk is that high oil prices will keep headline inflation stronger for longer.

"This also suggests that policy rates still need to move higher in the months ahead, with Beijing also likely to favor further currency appreciation to help get inflation lower."

ZHU JIANFANG, CHIEF ECONOMIST AT CITIC SECURITIES IN BEIJING:

"From the GDP figure, we can see the whole economy is basically stable, but the inflation figure has surpassed market expectations. And we think inflation for the second quarter will be around 5 percent."

"I think the central bank will continue to raise reserve requirements and interest rates this year, and the benchmark interest rate may be increased to 3.5 percent."

SUN MIAOLING, ECONOMIST AT CICC IN BEIJING:

"The March CPI figure shows that the inflation pressure will not taper off in the short term and we expect the consumer inflation to remain at high levels in the second quarter.

"The government will keep battling inflation as its priority in coming months, which could prompt the central bank to further tighten its monetary policies in the second quarter. So we think the chance is fairly high for the central bank to raise interest rates in the second quarter.

"We will not change our opinion that the economic growth may slow down in the next quarters, although the current figures do not quite support that trend. I think the economy may start to show more slowdown signs from the third quarter."

NIE WEN, ANALYST AT HWABAO TRUST IN SHANGHAI:

"The figures are higher than the market expectation, especially the CPI, which means the inflationary pressure is really big. So I think the tightening measures will continue.

"I think the central bank may raise the requirement reserves ratio this weekend or, if not, next week. No interest rate this month, maybe in June. If this month, the real economy may be affected a lot, they need time."

GEORGE WORTHINGTON, CHIEF ECONOMIST, ASIA PACIFIC, IFR MARKETS, SYDNEY:

"The generally stronger-than-expected numbers will raise expectations of further tightening from the central bank, with a hike in reserve requirements and further curbs on lending to specific sectors or by specific banks likely in the next few weeks following the 25bp rate hike earlier this month.

"Further rate hikes are likely as well; IFR looks for another 50-75bp in tightening this year with the next move likely in June. Encouragingly, there appears to be some move toward allowing a stronger rise in the yuan to help contain inflationary pressures; moves on that front would mean less need for tighter monetary policy settings."

DONGMING XIE, ECONOMIST AT OCBC BANK IN SINGAPORE:

"The GDP growth is in line with our expectations. The growth pace is likely to slow gradually in the next few quarters as tightening measures start to take effect.

"CPI is still on the high side. We expect inflation to hover around 5-5.5 percent in the second quarter and will only peak in June due to the base effect.

"Together with yesterday's credit data, the Q1 data suggests that there is still room for China to tighten further.

"We think China is likely to frontload the tightening policy this quarter, riding on the still strong growth momentum. We expect one interest rate hike in June and one more reserve requirement ratio hike in April or May."

WANG JIN, AN ANALYST AT GUOTAI JUNAN SECURITIES IN SHANGHAI

"The economic figures in the first quarter are strong, but still within market expectations, and I don't think the economy faces the risk of overheating and the growth momentum will slow down in coming months.

"The central bank will stick to its tightening stance and we expect more rises in reserve requirements and interest rates."

CONNIE TSE, ECONOMIST AT FORECAST IN SINGAPORE

"The overall outlook offers limited room for policymakers to ease its tightening stance, especially amid strong capital inflows.

"I look for another 100 bps worth of hikes in the benchmark 1Y rates for the rest of the year, which should bring the 1Y lending rate to 7.31 percent and deposit rate to 4.25 percent by year-end."

LINKS:

For details, see the website of the National Bureau of Statistics at www.nbs.gov.cn. There may be a delay before it publishes a report on its website.

MARKET REACTION:

-- The Shanghai stock market was up 0.64 percent at 0204 GMT, compared with a rise of 0.04 percent before the data came out. The yuan edged up to 6.5295 per dollar from 6.5298.

BACKGROUND:

- The economy is growing strongly even as the government ratchets up efforts to steer money and bank credit back to normal to put a lid on inflation.

- China's central bank has raised interest rates four times and banks' required reserve ratio six times since October.

- Premier Wen Jiabao vowed on Wednesday to use all tools at the government's disposal to stabilize prices and wrestle inflation under control.

- Chinese money market rates jumped on Thursday as expectations rose for a reserve requirement ratio hike in the near future, although traders anticipated benchmark interest rates would stay put.

(Reporting by Kevin Yao, Aileen Wang and Sally Huang; Editing by Ken Wills and Jacqueline Wong)

Copyright 2011 Thomson Reuters. Click for Restrictions.

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