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China’s economy grew by 8.7% to US$4.9 trillion in 2009, closing its gap with Japan

January 21, 2010

Despite the economic slowdown, China’s economy boomed beyond expectations in 2009 – GDP grew 8.7 percent to US$4.9 trillion against Beijing’s forecast of 8 percent, and a tad slower than 2008 which clocked a growth of 9.7 percent.

China is now on course to become the world’s second largest economy, after the US. As the factory of the world moves up the value chain, it is expected to overtake Japan whose economy is expected to have contracted by about 6 percent in 2009. China is expected to become the world’s biggest economy by 2030.

Nonetheless, a rising inflation and asset bubbles has Beijing worried about the quality of growth and future of the economy once the stimulus is withdrawn. Prices that really affect consumers such as those of food and real estate are rising more rapidly than incomes, a cause of concern for skeptics who already fear China is overheated.

In order to abate fears and cool the market, the Chinese government on Wednesday asked its top banks to curtail lending. Encouraged to lend to the Chinese consumer to boost domestic spending during the economic crisis, Chinese banks extended Rmb 9,590billion in new loans last year, more than double the amount in 2008. Analysts also expect interest rate hikes of about 54 basis points by mid 2010.

“My first worry is how to control price rises while promoting economic growth; this is my first concern,” Ma Jiantang, director of the National Bureau of Statistics, told the Financial Times on Thursday. “Another concern that is shared by us all is that the price of assets is probably growing too fast, for instance the price of real estate in some cities is growing too fast,” he continued.

Since November 2008, the Chinese government has adopted a series of stimulus measures to boost industries and consumer spending.  Stimulus measures included tax cuts, liberal monetary policies, investment incentives, preferential policies for rural markets and  increased government spending in 10 major industries, including steel, car making, textile and machinery.

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