* China's Q4 annual growth stronger than expected
* December inflation eases, but less than expected
* Fresh signs of inflation point to tightening need
* Data comes as Chinese president on U.S. state visit
By Aileen Wang and Kevin Yao
BEIJING, Jan 20 (Reuters) - China finished 2010 with a bang,
its growth soaring past forecasts and inflation slowing less
than expected, numbers that could prod the government to
intensify its easy-does-it approach to tightening.
Evidence of robust growth may give officials confidence to
take more aggressive steps to quell price pressures, from
stricter lending curbs to interest rate rises, as rising food
costs in recent weeks suggest inflation will rebound in coming
China's annual gross domestic product growth sped up in the
fourth quarter to 9.8 percent from 9.6 percent in the third
quarter, the National Bureau of Statistics (NBS) said on
Thursday, defying expectations for a slowdown to 9.2 percent.
"Inflation pressure is intensifying into January and the
tightening pressure will intensify, especially considering the
stronger-than-expected fourth-quarter GDP growth," said Isaac
Meng, economist with BNP Paribas in Beijing.
Full-year growth picked up to 10.3 percent from 9.2 percent
With President Hu Jintao on a state visit to the United
States, the figures served as a powerful reminder that despite
controversy about China's vast trade surplus, its economy is far
from dependent on exports.
Domestic investment and consumption contributed 9.5
percentage points to its growth last year, while net exports
added just 0.8 percentage point.
-- China's CPI, PPI http://link.reuters.com/syh37r
-- China's food inflation http://link.reuters.com/xyh37r
POLL-China's growth, inflation in 2011
ANALYSIS: China's ritual lending headache
Consumer prices in December rose 4.6 percent from a year
earlier, slowing from a 28-month high of 5.1 percent in November
but staying above forecasts for a steeper fall to 4.4 percent.
Other important data for December, from factory output to
investment, painted a picture of stable expansion, showing that
the world's second-largest economy was not overheating despite
the surprise jump in growth.
Although the growth and inflation figures had been published
in advance by local media, China's main stock index shed
2.9 percent as investors viewed the strong set of data as
bolstering the case for tightening.
MORE TIGHTENING NEEDED
China has officially raised banks' required reserves seven
times since the start of last year, with its most recent
increase taking effect on Thursday.
But it has increased interest rates only twice during that
time and some analysts warn that more forceful moves are needed.
The government is still debating the extent of credit curbs,
and reports in recent days have pointed to Beijing imposing a
lower ceiling on bank lending than some investors had expected.
"Beijing still has more work to do to keep the economy on an
even keel," said Brian Jackson, an economist with Royal Bank of
Canada in Hong Kong. "Risks are skewed to more aggressive
A Reuters poll showed that economists expect two interest
rate rises in the first half of 2011.
To keep banks from skirting restrictions on credit growth,
the Chinese banking regulator said on Thursday that lenders must
bring all of their off-balance-sheet loans sold to trusts back
onto their books this year.
In a sign that the various stabs at tightening are starting
to bite, China's benchmark short-term money market rate spiked
194 basis points on Thursday, heading for its biggest single-day
rise on record as the latest required reserves increase took
To ease the tight market liquidity, the central bank
conducted reverse repurchase agreements with selected banks,
sources told Reuters.
Weekly food price movements had long pointed to a decline in
inflationary pressure in December, but many analysts also
reckoned that any slowdown in inflation could be temporary.
December's data showed a clear slackening in price pressures
as monthly inflation eased to 0.5 percent from 1.1 percent in
A drop in food price inflation to an annual rate of 9.6
percent in December from 11.7 percent in November was the main
reason for the decline.
But price pressures could pick up in January, because harsh
winter weather could compound a surge in demand with the Lunar
New Year holiday falling earlier in the calendar this year than
Indeed, food price data compiled by the commerce ministry
shows vegetables and meat have become more expensive since the
start of the year.
"Growth momentum remains strong. However, inflation is the
key focus of the market. It will be a challenging year for China
to battle inflation," said Dongming Xie, China economist at OCBC
Bank in Singapore.
Currency appreciation is another potential tool in Beijing's
It has nudged the yuan higher against the dollar over the
past week, but dealers see the mini-burst of appreciation as
politically motivated to try to soften U.S. criticism of China's
currency policy during Hu's state visit.
Analysts expect appreciation of just 5 percent this year,
with Hu himself saying that inflation was hardly the most
important factor in determining the exchange rate.
Ma Jiantang, chief of China's statistics agency, said he was
confident that China would be able to control inflation in 2011
and that steps to limit the amount of cash in the economy would
be instrumental to taming price pressures.
Economists polled by Reuters forecast that Chinese consumer
price inflation will average 4.3 percent this year, above the
government's target of capping it at 4 percent.
Economic growth is expected to slow to 9.3 percent in 2011
from 10.3 percent last year.
(Additional reporting by Langi Chiang, Zhou Xin and Koh Gui
Qing; Writing by Simon Rabinovitch; Editing by Ken Wills and
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