Growth better than expected

When the final tallies come in, China's economic growth and inflation in 2012 may have done better than government targets.

Zhang Xiaoqiang, vice-minister of the National Development and Reform Commission, China's major economic policymaking body, told a forum that economic growth may have hit 7.7 percent in 2012, exceeding the government's full-year target of 7.5 percent.

Meanwhile, the National Bureau of Statistics announced that the country's consumer price index, a main gauge of inflation, was 2.6 percent, lower than the government's target ceiling of 4 percent.

The economy faced great downward pressure last year, but the government increased and improved its macro-control, Zhang said.

GDP growth slowed to a seven-quarter low of 7.4 percent in the third quarter last year. To shore up growth, the government has increased fiscal spending.

The economy will expand by around 7.5 percent this year, with urban and rural incomes growing at the same pace or slightly quicker, while inflation will be around 3.5 percent, according to Zhang.

The bureau reported that living costs toward the end of the year were rising more rapidly than in previous months, driven by food and grocery prices in the coldest winter in 30 years.

That pushed up the monthly consumer price index from 2 percent in November to 2.5 percent in December.

The bureau also announced that food inflation was 4.2 percent in December, up from 3 percent in November, as vegetables saw a dramatic price rise of 14.8 percent from the previous year. Vegetable price increases contributed 54.8 percent of national inflation growth, the bureau said.

The lingering cold weather and the spending spree in the run-up to Spring Festival on Feb 10, the Chinese lunar new year, may further influence fresh food prices, said Yu Qiumei, an economist from the bureau. The upward pressure may remain strong until the end of the first quarter when the weather gets warmer, she said.

Li Da, the owner of a bakery chain in Wenzhou, Zhejiang province, said he already saw many changes in food prices. "Eggs, flour and milk have all become more expensive since November. So I have to trim my budget for food materials to keep making a little profit."

But Li agreed that food inflation is seasonal, and things would return to normal in a couple of months.

Wang Yuwen, a researcher with the Financial Research Center of the Bank of Communications, said 2013 will see the start of a long cycle of price increases. But "as the cycle has just begun, the whole year's inflation may still be modest".

CPI in 2013 may rise between 3 percent and 3.5 percent year-on-year, Wang forecast.

"The inflationary pressure is likely to be more stressful in the second half, fueled by excessive global liquidity and the over-heated domestic investment risks," he added.

But the overall inflationary pressure will "be manageable", and would be more modest compared with 2009, said Sun Junwei, a senior Chinese economist from HSBC.

The outlook of rising inflation may lead the government to be more cautious in making economic policies, especially in its monetary policies. But the People's Bank of China, the central bank, would keep the monetary policy accommodative, "mainly through the use of quantitative tools", he said.

"We expect interest rates to remain unchanged in 2013. Open market operations will likely be the central bank's preferred tools for managing liquidity, with a cut of 100 basis points in banks' reserve requirement ratio likely to happen in the next few months."

The last round of loosening of the monetary regulation came with two cuts of interest rates in June and July, when the world's second-largest economy was mired in a slowdown.

Financial analysts are sending messages about their bullish expectations about China's economic growth this year, based on data showing stronger industrial performance and exports.

The move by the country's new leadership, headed by Xi Jinping, to embark on reforms and public infrastructure projects has led economists to forecast China's GDP growth will be around 8 percent in 2013.

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