BEIJING (AFX) - China's gross domestic product grew at a hefty 9.5 pct last year, beating the 9.3 pct expansion in 2003, despite a Beijing-directed campaign to rein in surging levels of investment. Although the full-year numbers came as little surprise to analysts, the government is expected to make a series of policy responses to bring growth further in line. Those moves could include a tightening of interest rates and a managed currency appreciation
"There is no 'landing' in China. No matter what the government has said, macroeconomic adjustment is not working," said ABN Amro chief Asia strategist Eddie Wong. "As long as they don't address the two main issues - the low cost of capital and undervalued currency - it's difficult to see substantial improvement." The slew of data released by the National Bureau of Statistics showed an economy which has slowed from the extremes seen earlier in the year, prior to Beijing's launch of a package of administrative and monetary measures, but which continues to hum along at uncomfortable levels
Surging exports, stoked by a weakening US dollar, led to a reacceleration in the last three months of the year with GDP expanding by 9.5 pct, compared to 9.1 pct in the July to September period
JPMorgan economist Ben Simpfendorfer said that the bank has raised its forecast for this year to 8.5 pct from 8.2 pct on the strength of the fourth quarter number, while Goldman Sachs economist Hong Liang told clients in a note that her 8.1 pct call for this year will remain unchanged but that there are "upside risks mainly because of (the) better than expected trade performance." Despite signs of a pick-up in economic activity towards the end of the year, NBS commissioner Li Deshui said that the government has achieved significant results in "strengthening and improving macroeconomic regulation" over the past 12 months
"Unstable and unhealthy factors in the economy's performance were put under control," Li said in a statement
Fixed-asset investment, one of the more keenly watched economic indicators, rose 25.8 pct in 2004 compared with to 2003's 26.7 pct gain, and down significantly from the blistering 43 pct recorded in the first quarter
December's urban investment growth slowed to 21.3 pct, and DBS Bank senior economist Chris Leung said that investment levels will continue to lose momentum, rising only 20 pct this year. But investment is still running too fast for some, raising expectations that more action will be need to bring it under further control. "Investment is still looking too hot so we need more tightening measures this year. If we don't get those measures then there are risks of overheating," said JPMorgan's Simpendorfer. Alarmed by the first quarter numbers, Beijing instituted a series of tough administrative measures in Spring last year, including arrests and forced project closures, aimed at curbing investment appetites. These were followed up in October with a much-anticipated interest rate hike, the first since the mid-1990s, after consumer price growth hit a seven-year high of 5.3 pct in July and August. Although consumer price growth fell back to 2.4 pct in December, and rose 3.9 pct over the year, analysts said that Beijing's war against inflationary pressures is not over, and that more rate hikes could be expected this year. "The hints we get from the People's Bank is that they're slightly more bearish, hawkish about inflation than many others in the government are," said Stephen Green, senior China economist at Standard Chartered Bank. Green forecast consumer prices to rise by 3.5 pct this year, and an increase in bank lending rates of between 51 and 99 basis points within the first six months. But for many analysts, the US dollar peg, fixed at around 8.27 yuan, remains the chief culprit for the relatively undiminished strength of China's economy. Surging exports and capital inflows, coupled with the rising costs of maintaining the peg, are likely to trigger the decision to revalue the currency, if only through a slight widening of the current trading band, before the end of this year