News / Asia

China's Economic Growth Surges

China's economy grew at a strong pace in the first quarter of this year, but financial experts warn that the world's third-largest economy may be on the verge of overheating.

China's economic growth rate surged to 11.9 percent for the first quarter of this year. The government also reports that the inflation rate was 2.2 percent, which is lower than the government's target.

The economic expansion this quarter is nearly double that of the same period last year.

Li Xiaochao, with the National Bureau of Statistics, said Thursday the government is so far pleased with results.

Li says the government believes the figures show that the measures it is taking to respond to the global financial crisis are "correct and effective."

Despite the strong numbers, Li said there are still many uncertainties that could hurt economic growth.

Li said China faces many challenges - such as a drought in the southwest, constraints on farmers' income and high prices for industrial goods, which could affect efforts to meet the target of eight percent growth for the whole year.

Stephen Green, the senior China financial analyst for Standard Chartered Bank in Shanghai, warns that the results hint at possible problems for the Chinese economy in the near future.

"Yeah, we think it's signaling strong growth. The economy shows signs of overheating," he said.  "The government has already withdrawn some of its stimulus measures. It probably needs to do a little bit more, although there is a huge debate about that in Beijing at the moment."

An economy that expands too rapidly, or overheats, can experience price inflation and see costs for assets such as real estate and stocks rise to unsustainable levels. In China, inflation is a particular concern because much of the population still lives on a less than $1,000 a year, and rapidly rising food and housing costs could spark protests.

At a meeting Wednesday, China's cabinet reviewed the data and said the country would stick to its "appropriately loose" monetary stance and the active fiscal policy adopted at the height of the global financial crisis in late 2008.

However, also Wednesday, the government said housing prices are rising too fast, and Beijing cannot ignore what it described as the growing monetary and fiscal policy risks.

The latest data show China is on its way to overtake Japan as the world's second largest economy, behind the United States. China's gross domestic product last year was $4.9 trillion, just behind Japan's $5.1 trillion.

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