China's economy soared by 10.2 percent in the first quarter of this year, fueled by strong investment, a government spokesman said in Beijing on Thursday. However, the good news did raise concerns that the economy could be overheating.

 

Gross domestic product, the broadest measure of goods and services output, reached 4.33 trillion yuan (about US$540 billion), Zheng Jingping, spokesman of the National Bureau of Statistics, announced at a press conference held in Beijing on Thursday.

 

"The growth seems to be on the fast side but I want to say such a rate still falls within the range of potential economic growth and it remains normal though reaching the upper limit," commented Zheng.

 

"It should arouse concern and has actually caught our attention," he added.

 

China's consumer price index--the leading measure of inflation -- climbed just 1.2 percent in the first three months. Economists are wary of a possible deflationary trend and drew attention to the CPI growth of 1.8 percent in 2005.

 

In an interview with Xinhua, Wang Xiaoguang, a macro-economics research fellow with the National Development and Reform Commission, said he believed the economy was being driven by hefty investment.

 

Investment in roads, factory equipment and other fixed assets totaled 1.39 trillion yuan which displayed a sharp growth of 27.7 percent or an increase of 4.9 percentage points year on year.

 

Investment in urban areas increased 29.8 percent to 1.16 trillion yuan while in rural districts it reached 230 billion yuan -- up 18.1 percent. In addition China is launching a massive "socialist new countryside" campaign to boost rural development and narrow the yawning gap between urban and rural communities.

 

Wang said local governments over extended themselves with excessively big projects in 2006 which was the first year for China's 11th Five-year Development Guidelines.

 

He called for intensified government efforts to tighten up on lending and the approval of projects involving land use. In the first three months Chinese banks used up roughly half of their lending targets for the entire year. This added 1.26 trillion yuan of loans -- up 13.98 percent from a year ago.

 

The State Council decided at an executive meeting chaired by Premier Wen Jiabao last Friday, to move to avoid any possible economic overheating by tightening controls on investment and the availability of funding. Detailed plans for this have yet to be hammered out.

 

The growth of imports rose significantly surging by 24.8 percent in the quarter to US$174 billion which is equivalent to a year-on-year rise of 12.6 percentage points.

 

The US has been expressing concerns about its huge trade deficits with China. It contends that China's yuan is artificially low. This is a factor in favor of Chinese exporters at the expense of US manufacturers, they’ve said.

 

In response to a journalist's question, Zheng said the US deficit problem could not be rectified by a simple revaluation of the yuan.

 

"In the short term the exchange rate can play only a minor role (in reducing US deficits) but the key lies in lowering production costs and raising savings rates in the long term," he said.

 

China already revalued its currency by 2 percent last July and the yuan has since appreciated by an additional 1 percent which the US considers too small a rise.

 

President Hu Jintao is currently on a state visit to the US Officials from both countries have said talks will include trade and currency issues.

 

Earlier this month a Chinese business delegation in the US led by Vice Premier Wu Yi pledged to purchase multi-billion dollars worth of US-made goods including Boeing aircraft.

 

In general China's economy has grown at an around 10 percent for each of the past three years.

 

(Xinhua News Agency April 20, 2006)