China's fastest quarterly growth in two years raised expectations that Beijing will lift interest rates sometime in next few months after a series of smaller steps taken to contain buoyant lending and prevent the economy and its markets from overheating.
"Obviously the month-on-month growth momentum is very strong," said Xing Ziqiang, an economist at CICC in Beijing. "So I think the chances for us to see an interest rate rise in the first quarter are increasing." For all of 2009, the economy grew 8.7 percent. That handily exceeded the official target of 8 percent, a goal deemed the minimum needed to create jobs and preserve social stability.
The data prompted J.P. Morgan and RBS economists to lift their 2010 growth forecasts to 10 percent from 9.7 percent and 9.5 percent respectively, but expectations of policy tightening outweighed optimism about China's contribution to global recovery. The US dollar briefly rose to its highest in four months after the Chinese figures, as investors cut their exposure on riskier bets. Shares in most of Asia-Pacific eased, though stocks in Shanghai were up 0.3 percent.
The fourth-quarter flourish was flattered by a low base of comparison in the same period a year earlier, when China's export-orientated economy was dragged down by the global financial crisis, costing more than 20 million migrant workers their jobs. But the double-digit growth is also testimony to the government's rapid response to the downturn.
A 4 trillion yuan ($585 billion) fiscal stimulus package was complemented by an unprecedented surge in lending by the nation's predominantly state-owned banks, ensuring that China was the first major economy to recover decisively from the credit crunch.
The statistics bureau, which released the GDP figures, also reported that consumer prices rose 1.9 percent in the year to December, a marked acceleration from November's reading of 0.6 percent.
Alarmed by a new burst of credit at the start of January, the central bank last week increased the proportion of deposits that banks must hold in reserve, rather than lending out, and followed through this week by ordering some of them to sharply curtail lending for the rest of the month.
The central bank has also been lifting yields on its bills over the past few weeks and on Thursday nudged up the yield on three-month bills for the second time this year. Retail sales grew 17.5 percent in the year to December, accelerating from 15.8 percent in November and compared with forecasts of a 16.4 percent rise. Industrial production growth slowed to 18.5 percent from 19.2 percent, undercutting market forecasts of a 20.0 percent increase.