MercoPress. South Atlantic News Agency

Chinese impressive growth keeps surprising and rattling markets

The Chinese economy grew an impressive 11.1% in the first quarter of 2007, but inflation in March rose to 3.3% and fears that rapid expansion will drive interest rates higher weighed on stock markets.

Primer Minister Wen Jiabao said that the economy grew steadily in the first quarter but warned that "some key problems still remain". "In the first quarter, China's economy grew steadily and fast, farm production was stable, industrial restructuring made new progress and both the employment rate and people's incomes rose markedly" But "China found it difficult to raise grain output and farmers' incomes, the challenge of reducing energy consumptions and greenhouse gas emissions proved arduous, money and credit grew excessively, and fixed assets investment and the trade surplus continued to increase" added the Premier. To prevent the economy from overheating, the Chinese government should promptly take economic and legal measures and strengthen macro control. "Subsidies should be provided to farmers to help them with grain production and the subsidies for purchasing production materials such as fertilizer and machine tools should be allocated and the country's minimum purchasing prices for grain must not be lower than last year", said Wen Jiabao. Interest rates have risen three times in the past year and the Chinese government has pursued other measures to try and prevent the economy from overheating such as limiting bank liquidity and credit lending. Despite that, investment in fixed assets - which includes state spending on construction projects - rose 25% in the first three months of the year. The economy has grown by more than 10% in each of the past four years, on the back of high government spending, rising exports and increased foreign investment. In the first quarter foreign trade reached 457 billion US dollars, up 23.3% over the same period last year. Exports jumped 27.8% and imports 18.2%, doubling trade surplus to 46 billion US dollars. But China's consumer price index (CPI), a major gauge of inflation, climbed 3.3% in March, the highest in more than two years. The Shanghai stock exchange closed almost 5% lower and Japan's Nikkei lost 1.5%. Meanwhile China's State Administration of Foreign Exchange, SAFE, announced that the country's foreign debt stood at 323 billion U.S. dollars at the end of 2006, up 14.9% from 2005. Of that total 139 billion U.S. dollars was medium to long-term debt, up 14 billion dollars or 11.5%; short-term debt was 184 billion dollars, up 27.5 billion dollars