In the third quarter of 2006 China's gross domestic product (GDP) grew by 10.4 percent, which is down 0.9 percent from the second quarter, announced the National Bureau of Statistics (NBS) today.

"The tendency of the economy to grow a bit too fast is being brought under control," said NBS spokesman Li Xiaochao.

The growth in the first three quarters was 10.7 percent -- down 0.2 percent from the first half. Industry reported growth of 13 percent compared with 4.9 percent for the primary sector and 9.5 percent for services.

Fixed asset investment totaled 7.19 trillion yuan (US$909.3 billion) in the first nine months -- up 27.3 percent from the same period last year but 2.5 percent down from the first semester.

China's foreign reserves stood at US$987.9 billion at the end of September. This is a rise of US$169 billion from the beginning of the year.

The volume of foreign trade surged to US$1.27 trillion -- up 24.3 percent on the first three quarters of last year.

Retail sales in the first three quarters totaled 5.5091 trillion yuan (US$696.7 billion), which is up 13.5 percent year-on-year.

Despite the two-digit economic growth the consumer price index only inched up 1.3 percent in the first nine months.

Runaway investment has been a major headache for China's economic planners in the last few months. The country's urban fixed asset investment posted growth of 31.3 percent -- the highest in three years -- in the second quarter.

The excessive growth in investment is accompanied by a similar increase in bank loans. Chinese banks approved new loans worth 2.3 trillion yuan (US$290.9 billion) in the first six months against a planned quota of 2.5 trillion yuan (US$316.2 billion) for the whole year.

With the economy in danger of overheating the government has raised the central interest rate as well as deposit reserve requirements for commercial banks.

The government has also published new land sale rules increasing land use taxes as well as compensation to those who lose their property to developers.

High-powered teams were sent to provincial cities to whip into line defiant local officials whose apparent obsession with high GDP figures led them to support many illegal investment projects.

In August the State Council publicly criticized Yang Jing, chairman of Inner Mongolia Autonomous Region and his two deputies, for ignoring macro control policies and failing to stop an illegal thermal power plant involving 2.9 billion yuan (US$366.7 million) of investment.

A month later, a senior leader from Henan Province in central China, was sanctioned for failing to stop the construction of an unapproved university campus occupying nearly 1,000 hectares of land in the provincial capital of Zhengzhou.

Despite slowing investment analysts have warned that government must keep up the pressure to prevent it from bouncing back.

"The effect of the macro control policies shouldn't be overestimated and preventing the economy from overheating should remain the top policy priority for the next 12 months," said Fan Jianping, an economist with the State Information Center, a think tank under the NBS.

The pressure for the yuan's appreciation has been another thorny issue in the economy.

Though the creeping appreciation of the yuan over past months has warded off a threat by the US, the largest trading partner of China, to impose a 27.5 percent punitive tariff on Chinese goods, the pressure coming with the country's seemingly ever rising foreign reserves is still intense.

To address the issue the government has eased rigid controls over foreign exchange, allowing businesses to keep a larger share of their foreign income and encouraging overseas financial investment in the form of qualified domestic institutional investors.

The government has also cut tax rebates on dozens of export goods in a bid to check their growth. The last effort appears to be paying off as exports recorded a growth of 26.5 percent in the first three quarters -- down 4.8 percent over the same period of 2005.

The overall trade surplus, nevertheless, hit a new high of US$109.85 billion at the end of September. This is higher than the total of US$101.88 billion for the whole of 2005.

Li Xiaochao attributed this partly to China's low labor costs. Despite rising wages the labor costs are just 2-3 percent of those in developed countries.

Other factors included China's large capacity of supply as a major destination for foreign investment and free movement of goods and services resulting from globalization.

(Xinhua News Agency October 19, 2006)