China's gross domestic product (GDP) expanded by 10.9 per cent in the first six months of this year, compared with the same period of last year, the National Bureau of Statistics (NBS) announced yesterday.

After posting a rate of 10.3 per cent in the first quarter, growth of the economy, now the fourth largest in the world, jumped to a higher gear of 11.3 per cent during the April-June period, the most rapid in more than a decade. The last time China recorded a growth of more than 11 per cent was 1994-95.

Despite the blistering rate of growth, the economy appears to be in good shape, said Bert Hofman, the World Bank's leading economist for China.

"From a short-term point of view, there still seems little cause for concerns," Hofman said yesterday. "Inflation remains low; China is running comfortable current account surpluses, and supply seems to hold up with demand."

The consumer price index, the key barometer for inflation, climbed a mild 1.3 per cent from January to June. Trade surplus totalled US$61.4 billion during the same period.

However, "there are some concerns on the efficiency of such a high, investment-driving growth rate," Hofman said.

Indeed, fixed asset investment, supported by banks awash with funds, was the leading force buoying current economic growth. During the first six months, fixed asset investment surged 29.8 per cent.

"We understand that this kind of growth is not sustainable," NBS spokesman Zheng Jingping said at a press conference hosted by the State Information Office.

"An excessive investment growth will result in overcapacity and accumulating financial risks."

The government has been taking measures to address the problem, and he did not rule out new tightening measures.

During the past three months, the central bank raised the benchmark one-year lending rate by 27 basis points. It also increased the proportion of banks' deposits required to put into reserves to reduce the amount of money available to be lent out. Authorities also introduced a series of measures to curb speculative investment in the real estate sector.

However, major driving forces for the economy have showed few signs of abating, except a small dip in money supply at the end of June.

Premier Wen Jiabao said last week that adjustment measures should be strengthened, fuelling speculation that new cooling moves are in the pipeline.

The second-quarter growth figure, which is even higher than most observers expected, reinforced many economists' prediction that those tightening steps could come very soon.

"The economy is not overheated, but it is moving closer towards overheating," said Niu Li, a senior economist with the State Information Centre, a think tank under the National Development and Reform Commission. "If necessary adjustments are taken soon enough, that danger could be avoided."

Source: China Daily