China says its economy grew by 7.8 percent in the first half of this year. But, beneath the upbeat numbers are problems with unemployment and deflation.

China is trumpeting what it says are new indications that its economy is moving from one strength to another.

Qiu Xiaohua, deputy director of the state statistics bureau says China's gross domestic product reached $551 billion in the first six months of 2002. That is a gain of 7.8 percent over the same period last year.

He predicts seven percent growth for rest of the year, and says the economy may top last year's announced 7.3 percent growth rate.

Mr. Qiu is crediting these figures to a gain of more than 14 percent in exports and increased government spending.

But the news is not all good.

Mr. Qiu warns of underlying economic problems, such as a high unemployment rate, declining government revenues, deflation, and economic stagnation in rural areas.

Outside China, many analysts say these problems are the real key to predicting where China's economy is headed. Many international economists say they think China may inflate its economic figures and that growth rates actually are closer to four or five percent.