Page last updated at 13:14 GMT, Thursday, 21 January 2010

China economy shows strong growth in 2009

China v Japan GDP

China has said its economy expanded by 8.7% in 2009, exceeding even the government's own initial expectations.

The pace of change increased as the year went on, with growth in the final quarter of 2009 increasing by 10.7% from the same period a year earlier.

China is now on course to overtake Japan and become the world's second-biggest economy.

Japan announces its latest quarterly gross domestic product (GDP) figures next month.

The Japanese economy is likely to have contracted by about 6% in 2009.

'What the world needs'

Jim O'Neill, chief economist at Goldman Sachs, said that China had come up with "a very smart policy stimulus" and that some aspects of the financial crisis may not have been a bad thing.

ANALYSIS
Chris Hogg
Chris Hogg, BBC News, Shanghai

Officials say China's economic stimulus package - the largest in the world in proportion to the size of the economy - helped China to rebuild and recover.

A year ago the concern was that economic growth here would be too weak. Now the fear is that it could be becoming too strong.

Investors here are nervous because it's not clear yet what action the government will take to try to ensure this recovery is sustainable.

Interest rates could rise. The country's currency may be allowed to gain in value against the dollar. Lending controls are likely to be tightened.

"[In] November 2008, they came up with a quick, aggressive fiscal and monetary response which has worked," he told BBC Radio 4's World At One programme.

"They have replaced exports with domestic demand, both consumption and investment... China has become more important as America [has become] less, which is what the world needs."

He said part of the reason behind the global crisis was that the world had become dependent on the US consumer, and the realisation of that had now forced countries to stand up for themselves.

"The most important one is China and their economy is now being driven by their own domestic economy, which will not only be increasingly important for them but important for everyone else including - directly and indirectly - people in Britain," he said.

'Right direction'

China's GDP announcement was made by Ma Jiantang, head of the National Bureau of Statistics.

He said China had faced "severe difficulties" in 2009, but its economy has now recovered and was moving in the right direction.

Annual growth was only slightly down on 2008.

These latest GDP figures have exceeded the target set by the Chinese government, the BBC's Chris Hogg in Shanghai says.

Chinese workers in Shenzhen queue up to enter factory

This is a turnaround because China, like other countries across the world, was hit by the economic crisis during late 2008 and early 2009. Factories closed and workers were laid off.

The economy recovered with the help of a massive government stimulus package but now there are signs it is expanding too quickly.

"There's very strong growth but there's real concern about the quality of the growth and what will happen when the stimulus is withdrawn," said Michael Pettis, professor of finance at Peking University.

"It seems pretty clear that any withdrawal of the investment stimulus is going to have a big impact on growth."

Inflation is also picking up, with consumer prices increasing by 1.9% in December from a year earlier.

Chinese authorities are expected to now take measures to prevent the economy from overheating.

Economists expect interest rates to rise, while banks have already been ordered to keep more money in reserve, and reports say some have even been told to stop lending for the rest of January.

ANALYSIS
Roland Buerk
Roland Buerk, BBC News, Tokyo

It is impossible to know for certain yet but economists may look back and say this was the moment China overtook Japan to become the world's second biggest economy.

What is not in doubt is their trajectories. China is powering ahead while Japan is slipping behind.

It should be remembered, though, that as China's population is 10 times the size of Japan's, even if its overall economy is bigger, Japanese people remain vastly richer than those in China.

During the 1980s it was Japan which was rising, and some predicted then it would one day even overtake America. But then there was a crash followed by two decades of stagnation.

'China's reality'

But Mr Ma played down speculation that China's economy had now overtaken Japan's.

"According to the UN standard - that is $1 a day - there are still 150 million poor people in China. That is China's reality," he said.

"So despite the increase in our GDP and economic strength, we still have to recognise that China is still a developing country."

On inflation, he said that price rises were "mild and under control".

Predictions

Meanwhile, the World Bank has said that the global economic recovery will slow later this year as the impact of government stimulus policies wanes.

The Bank has forecast growth of 2.7% this year after a contraction in 2009.

However, its predictions for Japan are slightly less pessimistic than other forecasters. It estimates that Japan's economy shrunk by 5.4% last year.

It added that the poorest countries - those that rely on grants or subsidised lending - may require an additional $35bn to $50bn in funding just to sustain pre-crisis social programmes.

China is expected to become the world's biggest economy in 2030.



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