Reply #11: China's Economy Grows at Fastest Pace in 12 Years

[Ghost Dog]

http://www.bloomberg.com/apps/news?pid=20601080&sid=araJdCuBhd4M&refer=asia

July 19 (Bloomberg) -- China's economy grew at the fastest pace in 12 years in the second quarter and inflation surged, prompting speculation the government will raise interest rates and push the currency higher to cool growth.

Gross domestic product expanded 11.9 percent from a year earlier, the statistics bureau said in Beijing today, exceeding all estimates of 23 economists surveyed by Bloomberg. Inflation climbed to 4.4 percent in June, the fastest since September 2004, breaching the central bank's 3 percent target for a fourth month.

Growth was powered by investment in factories and real estate that the government has been unable to cool with two rate increases this year and restrictions on bank lending. Allowing the yuan to strengthen may also help quell tensions with the U.S. and Europe, which say China's record exports reflect the unfair advantage of an artificially low currency.

``Accelerating inflation and a rebound in fixed-asset investment heighten the risk of overheating,'' said Wang Qing, chief China economist at Morgan Stanley in Hong Kong. ``Demand in key sectors is not outstripping supply yet, but the government is concerned.'' Wang expects an interest-rate increase ``any time from now.''

The yuan rose to as much as 7.5615 against the dollar, the highest since China abandoned a decade-old peg to the dollar in July 2005. It traded at 7.5632 at 5:34 p.m. in Shanghai, from 7.5639 before the report was released. The currency has climbed 9.4 percent since the link ended.

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