Business Blog Posts

Food costs, the main driver of Chinese inflation, have picked up in recent weeks, showing that Beijing has its work cut out to keep a lid on price pressures.

But other important December data, from factory output to investment, painted a picture of stable expansion, suggesting the world's second-largest economy was free from overheating, despite the surprise jump in growth.

China's annual gross domestic product growth sped up in the fourth quarter to 9.8 percent from 9.6 percent in the third quarter, the National Bureau of Statistics (NBS) said on Thursday, defying expectations for a slowdown to 9.2 percent.

"Inflation pressure is intensifying into January and the tightening pressure will intensify, especially considering the stronger-than-expected fourth-quarter GDP growth," said Isaac Meng, economist with BNP Paribas in Beijing.

Although the growth and inflation figures had been published in advance by local media, China's main stock index shed 1 percent by 0303 GMT as investors viewed the strong set of data as bolstering the case for tightening.

Consumer prices rose 4.6 percent in December from a year earlier, slowing from a 28-month high of 5.1 percent in November but staying above forecasts for a steeper fall to 4.4 percent.

MORE TIGHTENING NEEDED

China has officially raised banks' required reserves seven times since the start of last year, with its most recent increase taking effect on Thursday.

But it has increased interest rates only twice during that time and some analysts warn that more forceful moves are needed.

The government is still debating the extent of credit curbs, and reports in recent days have pointed to a lower ceiling on bank lending than some investors had expected.

"Beijing still has more work to do to keep the economy on an even keel," said Brian Jackson, an economist with Royal Bank of Canada in Hong Kong. "Risks are skewed to more aggressive action."

In a sign that the gradual tightening thus far has started to bite, China's benchmark short-term money market rate spiked 194 basis points on Thursday, heading for its biggest single-day rise on record.

In month-on-month terms, the December numbers in fact registered a clear slackening of price pressures. Consumer prices rose 0.5 from the previous month, down from a 1.1 percent rise in November.

Beijing has also nudged the yuan higher against the dollar over the past week, but that mini-burst of appreciation has been seen as politically motivated, aimed at softening U.S. criticism of China's currency policy during President Hu Jintao's visit to Washington.