China first quarter GDP growth hits 11.1%

China’s economy in the first quarter grew 11.1 percent from a year earlier, fuelled by rapid investment and booming exports, with a series of recent monetary tightening measures apparently doing little to restrain activity.

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Annual consumer price inflation hit 3.3 percent in March, the first time it has gone above 3 percent in more than two years, which will fuel concern about another interest rate rise in the near future.

• Economists had expected annual GDP growth of 11.0 %.
• GDP growth was 10.4 % in the 4th quarter of 2006 and 10.6 % in the 3rd quarter.

This is very strong. It means more tightening. I think there will be at least two more rate hikes and the reserve ratio will have to go up to 12 percent from 10.5 percent.The tightening measures have not been working because they are not fast enough. They shouldn’t raise rates every other quarter they should do it every quarter. I think the effect would be much stronger.

CHRIS LEUNG, CHINA ECONOMIST AT DBS BANK IN HONG KONG

A 3.3 percent rise in CPI inflation in March will greatly boost the possibility for an interest rate hike.But an interest rate hike will only help to prevent real interest rates from being sharply negative and will not help solve China’s economic problems at the root.I think appreciation of the yuan will be more effective way to solve China’s economic problems.

ECONOMIST GENE MA AT CITIC SECURITIES

The Shanghai Composite Index had dropped 3.3 percent by mid-morning before recovering sightly to stand down 2.58 percent at 3,519.331 points in hectic trade.

Heavily weighted blue chips led the market down, with oil refining giant Sinopec losing 5.35 percent to 10.79 yuan.

A persistent rumour says March consumer price inflation will come in at 3.3 percent, well above 2.7 percent in February.

The stock index has soared 26 percent between the end of February and this week’s all-time high, so traders say it is ripe for a pull-back. Some think such a pull-back could extend several hundred points over several days.

However, with mutual funds continuing to raise record amounts of fresh money and individual Chinese investors flocking to the market, many analysts expect any substantial fall to trigger fresh buying interest.