China's Economy Expands By Nearly 10%

China's economy expanded by a stunning 9.9 percent in 2005 according to data released Wednesday which suggests it may now rank the fourth-biggest in the world.

Spurred by strong exports and foreign investment, growth in the fourth quarter was also up 9.9 percent from the same period a year ago.

For all of 2005, China's gross domestic product totaled $2.26 trillion, the National Bureau of Statistics said.

According to recent estimates, that would make China's economy the fourth largest in the world, behind the United States, Japan and Germany, after steamrolling past Britain, France and Italy.

The economy is showing hardly any signs of slowing down despite efforts by the communist leadership to curb excessive investments in construction and redundant factories that have strained transport networks and supplies of energy and other resources.

Growth in 2004 was 10.1 percent — a figure recently revised up from the original 9.5 percent based on an economic census that uncovered much larger than expected growth in the services sector.

Chinese economic data are notoriously unreliable, and some economists questioned whether the figures announced Wednesday were understating real growth, given a nearly 30 percent surge in exports and strong domestic spending.

The 9.9 percent figure "doesn't quite capture it," said Stephen Green, senior economist for Standard Chartered Bank in Shanghai. "One could say that 9.9 percent is a very convenient number; it's not 10 percent. Ten percent might scare people, and might create more trade friction with the U.S."

While many other countries have yet to release 2005 GDP figures, according to the most recent figures available and projections for the year, China's economy is now bigger than those of Britain, France and Italy.

But while its growth has been meteoric, China remains a developing economy — that wealth is spread among a population of 1.3 billion people, a large share of whom live in poverty.

The Statistics Bureau said GDP growth in the first three quarters of 2005 was revised upward from preliminary estimates, to 9.9 percent in the first quarter, 10.1 percent in the second and 9.8 percent in the third, from 9.4 percent, 9.5 percent and 9.4 percent, respectively.

The economy has consistently overshot official targets for the past several years. Perhaps partly for that reason, officials presenting the report did not offer forecasts for 2006. Government economists earlier offered predictions of between 8.5 percent and 9 percent for this year, a range in line with estimates by the World Bank and many private economists.

One of the key factors behind last year's better-than-expected performance was strong investment in construction and factories. Such spending grew a robust 25.7 percent to $1.1 trillion, and officials warned of problems in keeping it under control.

Retail sales, an increasingly important driver for growth, climbed 12.9 percent year-on-year to $831 billion, the Statistics Bureau reported.

Chinese officials have stressed the need to reduce the reliance on exports, which accounted for more than 30 percent of GDP growth in 2005, by further boosting domestic spending.

"We believe domestic demand will increasingly become a much more important driver for the coming years," Liang Hong, the chief China economist for Goldman Sachs, said in a research note.

The consumer price index, China's main gauge of inflation, rose a mere 1.8 percent last year. Surging costs for raw materials and fuel were countered by falling prices for many industrial goods, reflecting overcapacity in key sectors such as autos and steel.

Excess production is squeezing profit margins, economists have warned. Li Deshui, director of the Statistics Bureau, told reporters the trend could lead to higher bankruptcies. It could also sap investment demand at a time when export growth is bound to begin slowing, said Green of Standard Chartered.

Nevertheless, the government report forecast a positive outlook for the economy this year.