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Last Updated: Thursday, 15 April, 2004, 04:45 GMT 05:45 UK
China's boom fuels fears of slump
Chinese worker
The faster China grows, the further it could fall, economists warn
China has recorded another quarter of rapid growth, fuelling fears that the economy could overheat.

Gross domestic product was up 9.7% year on year in the first three months of 2004, while investment in fixed assets soared by 43%.

While such figures look nothing but positive, economists worry that unchecked growth could topple over into a slump, impacting the rest of Asia.

The Chinese government has moved to play down such fears.

In particular, it has sought to calm runaway bank lending - the source of much speculative financing, especially in the property sector.

'Further to fall'

On Sunday, the State Council, or cabinet, vowed again to take "resolute steps" to smooth out any economic boom-and-bust cycle.

But Joan Zheng, chief economist at JP Morgan in Hong Kong, said the Chinese government had not done enough to cool the economy.

"Simply relying on monetary policy is not going to be enough. We need to have taxation policies and other tools to target investment in particular," she told the BBC's World Business Report.

Persistently high levels of investment, which at least partly reflect spending on housing and other construction, are seen as a cause for especial concern.

No slowing down

It had been expected that the latest batch of economic data would show some slowing, as a sluggish global economy bites into demand for China's exports.

But there has been little sign of that.

Factory output was 19% higher in March than a year earlier, and exports were 43% higher.

Inflation, a key indicator of overheating, remains modest: the consumer-price index was up just 2.8% year on year in the first quarter.

At some point, however, rampant investment are likely to cause supply bottlenecks, particularly in markets for raw materials such as fuel, metals and building supplies.

The news is likely to boost calls for China to free its currency - currently pegged to the US dollar - in order to allow foreign exchange markets to act as a curb on domestic demand.

Joan Zheng, chief economist, JP Morgan
"Growth is exceeding what is available in terms of raw materials."

The BBC's Ashwini Devare
"Analysts say authorities need to be more aggressive in cooling the economy"

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