China’s annual growth soared to 11,3% in the second quarter of this year, the fastest rise in more than a decade, on the back of strong exports and investment, the Chinese government said this week.
The world’s fourth-largest economy may now face higher interest rates, economists believe, to reduce its reliance on cheap money and the risk of overheating.
”It looks like a rate hike is now certain and the question is by how much,” said Dong Tao, economist at Credit Suisse. ”A move should come very soon.”
The latest growth figures were up from 10,3% in the first quarter, beating expectations of 10,5%, as the economy charged forward at the quickest pace since the first quarter of 1995. That year, China grew by 10,9%, while in 1994 it expanded by 13,1%.
With growth now averaging 10% a year over the past three years, many economists cannot foresee a slowdown and say that the dramatic tightening that is needed would be out of character for China’s cautious policymakers.
”Given the strong economic momentum, I think growth for the whole year will surpass 11%,” said Gao Shanwen, economist at Everbright Securities.
The results highlighted a need for a stronger yuan to rebalance the economy, analysts said, as an undervalued exchange rate was one of the drivers behind the surge. The record trade surplus of $14,5-billion in June, partly due to the exchange rate, generated a fifth of growth in the second quarter, compared to a tenth in the first. It also fuelled an investment frenzy in fixed assets, up by 29,8% from a year earlier, another factor in China’s growth. — Â