China Close To Becoming Third Largest Economy

(via Economic Times) China's sizzling economy grew even faster in 2006 than previously reported, bringing it closer to overtaking Germany as the world's third-biggest, and its export-fueled foreign reserves have risen to a new high of $1.33 trillion, according to new government data.

The figures released Wednesday reflect China's stunning economic success but could fuel fears of overheating and prompt Beijing to boost interest rates or tighten regulatory controls to cool the boom. The National Bureau of Statistics raised its estimate of China's 2006 growth rate from 10.7 per cent to 11.1 per cent. It nudged up its estimate of total output to 21.1 trillion yuan ($2.705 trillion; euro 2.048 trillion), bringing China closer to overtaking Germany as the world's No. 3 economy after the United States and Japan.

The statistics agency routinely issues such revisions to economic growth rates. But the latest report could receive special attention from Chinese leaders, who are trying to rein in a boom that they worry could ignite a financial crisis.

Chinese leaders want to maintain fast growth to reduce poverty but are trying to slow investment in auto manufacturing, real estate and other areas where supply outstrips demand. They worry that runaway spending could ignite inflation or leave banks and borrowers with dangerously high debt levels.

The central bank's research bureau said last month the economy was expected to expand by 10.8 per cent this year. That was in line with projections by the World Bank and other economists, and would be China's fifth straight year of growth in excess of 10 per cent. China's trade surplus soared to a new monthly high of $26.9 billion (euro 19.8 billion) in June, the government reported Tuesday. The flood of export revenues has forced the central bank to drain billions of dollars a month from the economy through bond sales to reduce pressure for prices to rise, piling up the money in US Treasury’s and other foreign securities and helping to finance Washington's budget deficit.

The reserves, already the world's largest, rose to US$1.33 trillion (euro 965 billion) at the end of June, a 41.6 per cent increase over the same time last year, the official Xinhua News Agency said, citing the central bank. The reserves soared by $266.3 billion (euro 193 billion) in the first six months of this year, more than in all of 2006, the bank said. Beijing is creating a company to make more profitable use of the reserves through commercial investments abroad. Plans call for the company to receive an initial injection of $200 billion (euro 160 billion) in government money.