Fast Growth and Inflation Threaten to Overheat Chinese Economy

SHANGHAI — Over the years China has benefited tremendously from rapid economic growth, but inflation is beginning to eat away at those gains.

Fast growth has fired up the country’s economic engines, but it has also led to stubbornly high inflation, which threatens to overheat the economy and undermine the long-running boom that the country has experienced.

The latest evidence of this came Friday when China said its economy had grown 9.7 percent in the first quarter of this year, certainly the strongest performance among the world’s biggest economies. But the government also said that in March the consumer price index had risen 5.4 percent from the level of a year earlier, the sharpest increase in 32 months.

Analysts were not surprised by the figures, but some experts believe they may understate the real rate of growth and inflationary pressure.

To prevent overheating, Beijing is trying to moderate growth and rein in inflation. During the past six months, the government has tightened restrictions on bank lending, raised interest rates, increased agricultural subsidies and even prevented Chinese companies from raising consumer prices.

Analysts, however, say the results have been mixed. Growth has begun to moderate from the torrid pace of 10 percent annual growth last year, but inflationary pressure has not abated; in fact, it has strengthened. Some analysts say inflation may not peak until June.

China’s current boom got under way in early 2009, during the global financial crisis, when Beijing moved aggressively to increase growth with a $4 trillion government stimulus package and record lending by state-run banks.

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The New York Times, April 15^th, 2011