BEIJING — China’s economy grew 8.7 percent last year, outpacing earlier predictions and the government’s own target for 2009, new data released Thursday showed.

This story first appeared in the January 22, 2010 issue of WWD. Subscribe Today.


The data places China on the path to becoming the world’s second-largest economy, eclipsing Japan and trailing the United States. Japan’s 2009 GDP numbers, due next month, will confirm whether or not China has in fact overtaken Japan.

China’s gross domestic product growth was buoyed by a fourth-quarter spurt of 10.7 percent over the same period a year earlier, according to the National Bureau of Statistics here. Economists said the growth rate indicates China’s economy is back on track, but serious trouble spots remain in a real estate bubble, inflation and overheated lending.

The country’s growth rate took a major hit in the latter part of 2008 thanks to the global financial crisis, but China’s economy steadily improved throughout 2009. The Chinese economy grew 6.2 percent in the first quarter, 7.9 percent in the second and 9.1 percent in the third quarter. The annual growth rate is far above the government’s target of 8 percent, but well below 2008’s GDP growth of 9.6 percent.

Despite apparent weight added to the growing consensus that China has recovered from the global downturn, economists say this year will be a tricky one for the central government, which needs to manage a brewing cauldron of potential economic problems. Chief among those is China’s real estate bubble, which has reached new proportions in recent months.

Yuan Gangming, an economist with the Chinese Academy of Social Sciences, said much of the GDP growth is due to the real estate sector, which has grown far too fast and too high. A bubble is waiting to burst, but the way forward remains largely unclear.

“The government is in a very difficult situation, knows that adjustment must be made, but at the same time dares not make sudden moves,” Yuan said. “If very strong measures are taken, [the property sector] will collapse.”

Inflation is also a concern. The economic downturn helped control China’s rising inflation fears in 2008, but prices are back on the rise. According to the new data, consumer prices increased 1.9 percent in December, up from a 0.6 percent increase in November.

“In the second quarter, consumer prices will rise by a lot and when people start to complain, the government will have to react with some tightening measures,” said Yuan.

Economists said China is apt to continue its stimulus spending this year, without any abrupt change in course. The government’s $586 billion spending program, largely targeted to infrastructure projects like railways and roads, is credited for China’s strong rebound from the financial crisis after its export market collapsed. Exports are bouncing back, but stimulus spending is likely to remain on course.

“In general, the stimulus policy should be kept at the same level as before, maybe a little more or a little less, but it won’t need a change in the short term,” said Yu Jianguo, an economist with a government-affiliated think tank.

Correction: A previous edition of this story incorrectly stated China's GDP ranking in terms of the world's largest economies.
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