The economy grew by 8.7% in 2009, the slowest pace of growth since 2001 but a far cry from the more bearish assumptions at the start of last year about how China's economy would perform during such a dramatic global slump. It included a 10.7% increase during the fourth quarter of year.
The economy was thought to have overtaken Japan as the world's second biggest in 2009, though government officials have played this milestone down, noting China's relative poverty when measured on a GDP-per-capita basis.
The data release Thursday was followed by the now-usual flurry of analyst upgrades for economic growth in 2010, with Royal Bank of Scotland and J.P.Morgan both upping their forecasts to 10.0% from 9.5% and 9.7%, respectively.
Speaking at a briefing here shortly after the release, Ma Jiantang, the head of the National Bureau of Statistics, wouldn't give a specific prediction for growth this year (the government is expected to target 8%, as it usually does) but said that he expects a "stable, relatively fast" economic expansion.
But Ma also warned that 2010 will be about balancing the need to support growth with managing rising inflation.
"It's hard to promote economic growth and at the same time control inflation expectations and rising asset prices," he said.
The cost of achieving 8.7% growth are clearly already being felt by a government which has taken the extraordinary -- if not unprecedented out money until the end of this month.
The decision to do so came amid widespread concerns about significant amounts of non-performing loans in the banking system that analysts warn will undoubtedly be created as a result of lending activities last year and at the start of 2010.
But those loans also helped fuel a solid rebound in growth from the troughs seen at the end of 2008 and start of 2009 (and helped to more than compensate for the drag on overall growth from the trade sector).
Industrial output growth -- which fell to as little as 5.4% y/y during the crisis -- rose by 18.5% y/y in December, the fastest increase since September 2007, while urban fixed-asset investment growth stayed above 30% for an eighth month.
But price data underlined the government's concerns about inflation and its actions to tackle a liquidity surplus in the money market and a recalcitrant banking system.
The consumer price index surged to 1.9% in December from 0.6% the previous month, which was the first time last year it had turned positive. The producer price index also turned positive for the first time in December since November 2008, rising 1.7% y/y.
Property prices rose 7.8% y/y in December, the fastest pace of growth since June 2008. The government has started withdrawing tax incentives introduced to prop up the real estate sector (and followed similar steps in the auto industry).
With the PBOC already taking on liquidity in the interbank system (the net injection that resulted from this week's open market operations doesn't factor in the CNY300 billion locked up by Monday's reserve requirement increase), analysts see it as only a matter of time before benchmark interest rates are increased.
Capital Economics brought forward its forecast for the first rate hike of the cycle to as early as March from the second quarter, warning that consumer price inflation could hit 3% y/y.
Growing domestic asset bubbles mean that China may not even wait for the U.S. to raise interest rates, a China Investment Corp official told Market News International last week, despite an earlier strategy to do so owing to concerns about attracting more hot money on shore as well the need for a signal from Washington that the Fed there was comfortable with the state of the U.S. economy.
The disastrous slump in economic activity in the second half of 2008 flattered end-of-year growth rates last year and will continue to do so into current quarter.
But data covering underlying activity point to an economy which last year outperformed even the most bullish expectations for it and all indications are that the government has finally decided to take meaningful steps to rein in its supportive hand and to continue to do so as 2010 progresses.
