China's GDP Grows 10.6%

China's economy grew 10.6 percent, faster than estimated, and inflation was close to the quickest in 11 years, prompting the government to order banks to set aside more money to slow lending., Bloomberg 4/16/2008 4:24:42 PM

Gross domestic product for the first quarter grew more than the 10.4 percent median estimate of 24 economists surveyed by Bloomberg News. Consumer prices climbed 8.3 percent in March, the statistics bureau said today in Beijing.

As the U.S. economy falters, policy makers in China, the biggest contributor to global growth, still regard inflation and overheating as bigger threats than a slowdown. The central bank raised the proportion of deposits that lenders must set aside as reserves to a record 16 percent to cool an economy that has grown more than 10 percent for nine straight quarters.

Reserve requirements will rise 50 basis points from April 25, the third increase this year, the People's Bank of China said today on its Web site. Within an hour of the announcement, Premier Wen Jiabao said in a statement that inflation is China's biggest problem.

Inflation climbed to 8.7 percent in February, the highest rate since May 1996. China's foreign-exchange reserves, the world's largest, rose to $1.68 trillion at the end of March.

While first-quarter economic growth slowed from 11.2 percent in the previous three months, combating inflation and preventing overheating remain the government's most important tasks and a ``tight'' monetary policy will continue, said Li Xiaochao, the statistics bureau spokesman.

Soaring food costs hurt the 300 million people in China estimated by the World Bank to be living in poverty. The central bank said last month that a survey showed 49 percent of households viewed inflation as ``too high to bear.''

First-quarter growth slowed as the worst snowstorms in 50 years closed factories, destroyed crops and delayed shipments, and U.S. demand for exports weakened. The trade surplus narrowed from a year earlier for the first time since 2004 and export growth slowed.

Urban disposable incomes climbed 11.5 percent in the first quarter from a year earlier to 4,386 yuan ($627), the statistics bureau said. Rural earnings rose 18.5 percent to 1,494 yuan.

Factory and property spending in urban areas grew 25.9 percent in the first three months from a year earlier after a 24.3 percent increase in January and February combined. Retail sales climbed 21.5 percent last month, the fastest pace since at least 1999, when Bloomberg data began.

China's economy, which may overtake Germany's as the world's third biggest this year, has averaged 10 percent annual growth and expanded 68 times in size since free-market reforms started in 1978. The nation's appetite for imports is helping Asia to weather the U.S. slump.