If the World Bank’s forecasts of 9% GDP growth for China this year and next are proven to be accurate, then the country will move past Japan this year into second slot behind the US, and extend the lead on Japan in 2011.

It moved past Germany last November  to become the world’s biggest exporter, and remained there in December.

In 2009 China also emerged as the world’s biggest car market, overtaking the faltering US market.

All three development shouldn’t be no real surprise, especially after we saw the outcome of 2008’s $US585 billion ($A639 billion) of stimulus spending.

China’s growth rate accelerated to the fastest pace since 2007 in the fourth quarter 0f 2009, raising the prospect of more moves to slow credit growth, bank lending and inflationary pressures.

Gross domestic product rose 10.7% from the 4th quarter of 2008 when it plunged after the crunch and recession when Lehman Brothers imploded and other financial groups trembled.

For the full year, GDP grew 8.7%, beating the government’s proforma target of 8%.

GDP amounted to $US4.91 trillion, according to the government’s National Statistics Bureau’s first report.

Growth of 9% this year and next will lead to that figure topping $US5.43 trillion at the end of this year and more than $US5.9 trillion by December, 2011.

That assumes no slowdowns or other problems as the government tries to slow the fires stroking from the bubbling economy

An acceleration in consumer inflation to 1.9% in the 12 months to December from November’s 0.6% will reinforce worries about possible economic overheating on the back of renewed surge in bank lending.

Showing how quickly the inflationary pressures have grown, producer prices rose 1.7% in December, after falling for the preceding 12 months, and being down 2.1% in the year to November.

For the full-year, however, the CPI declined 0.7%, while the PPI dropped at a steeper 5.4%. But that was due to the price weakness in the first nine months of the year.

Inflation for January, February and into the second quarter this year, is expected to be high after the severe winter storms (for a second January in a row), causing price rises for energy, food and left transport and production in chaos.

Adding to the sense of rapidly growing economic activity, the growth rate for the sluggish first quarter of 2009 was revised up to 6.2% from 6.1% and growth for the third quarter was boosted to 9.1% from the first reported 8.9%.

The report will continue the growing speculation that the central bank will start raising its benchmark interest rate and tighten restrictions on banks, which happened on Wednesday.

Minutes after the release of the latest figures yesterday, traders said the People’s Bank of China guided three-month bill yields higher at an auction for the second time in two weeks.

Industrial production grew a very strong 18.5% in the 12 month to December and retail sales climbed 17.5%.

Retail sales were up from the 15.8% rate in November, while rise in industrial production growth was slower than November’s very sharp 19.2% annual rate.

Steel production rose by 13.5% in 2009 to more than 567 million tonnes, a record, car sales hit a record, as did cement production and power consumption.

Coal production rose (but exports fell). Oil production, however, declined 0.4%, continuing the trend that has been apparent for most of the past year. Growth in urban fixed investment rose 30.5% in 2009, the statistics bureau reported.

China’s 2009 GDP growth rate was down from 9.6% in the previous year.

There is obvious official concern at the bubble-like nature in some parts of the economy.

At a press conference in Beijing yesterday, a senior official with the National Statistics Bureau voiced some of these fears.

“My first worry is how to control price rises while promoting economic growth; this is my first concern,” said Ma Jiantang, director of the National Bureau of Statistics.

“Another concern that is shared by us all is that the price of assets is probably growing too fast, for instance the price of real estate in some cities is growing too fast.”

Ma also said the government was also worried about continued overcapacity in many industries.

That’s as clear a statement of official concern as you can have.

So what’s this mean for Australia?

In the short and medium term, not much more than we have now: strong and rising demand (and soon prices) for iron ore, coal and other exports to China.

More Chinese interest in Australian assets, mines, companies (such as CSR’s sugar business).

China and the US may have decoupled, Australia and China are firmly joined at the iron ore port/unloader.

Peter Fray

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