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China Reports Substantive Growth in 2005

With growth of almost 10 percent in 2005, the Chinese economy continues to power ahead. China is now one of the world's top five economies.

China's National Bureau of Statistics announced on Wednesday that the country's economy grew 9.9 percent last year. Gross domestic product totaled almost $2.3 trillion in 2005.

Analysts say the GDP figures indicate China has overtaken France to become the world's fifth largest economy. Some say it may even have pushed Britain from fourth place.

The 2005 growth was mainly driven by investment and exports. Exports increased by more than 28 percent to $762 billion last year, generating a record trade surplus of more than $100 billion.

The statistics bureau said investment, mainly in urban construction and infrastructure, accounted for nearly half of last year's economic expansion.

Qu Hongbin, a China economist in Hong Kong for the British bank HSBC, says China will only be able to sustain its economic growth if it gradually shifts its focus away from infrastructure investment. Qu believes the government needs to step up efforts to increase consumer spending, which is still very low compared with more developed economies.

"One reason the growth has been relying too much on the investment is that the government itself has put a lot of money in the construction project, but not enough in the social infrastructure, such as education, public health," said Qu Hongbin. "I think the government needs to correct, to readjust its old spending pattern, and that will have impact on the consumer spending and similar behavior over time."

Chinese officials acknowledge that economic planners still have to overcome many problems, especially in less developed rural areas, where two thirds of China's population lives.

And while its GDP has surpassed some of the world's largest economies, Qu points out that given China's 1.3 billion people, the country still remains poor.

China's economy has grown by more than nine percent a year for the past several years. Many economists fear that pace may be too rapid, and could lead to inflation or to the building of excess capacity in factories and property development. Both situations could lead to economic problems that could destabilize China's banks or cause a recession.

While the central government has tried to curb excess development and reckless bank lending, China's leaders are reluctant to cool off the economy very much. The country has tens of millions of unemployed people, and hundreds of millions of Chinese scrape along on less than $1 a day. Beijing leaders have made it clear they want to cut unemployment and poverty, to avoid causing social instability.