China faces spending curbs as Economy soars

China’s sizzling economy grew by 10.7% last year and faces strains from a soaring trade surplus and excessive investment, the government said today, leaving open the possibility of new interest rate increases or economic controls.

The annual growth figure was China’s highest since the 10.9% rate reported in 1995 and exceeded forecasts by most Chinese and foreign economists.

Growth in 2007 should continue to be “fast and stable”, the commissioner of the National Bureau of Statistics, Xie Fuzhan, said at a news conference.

Investment in real estate and other assets surged, while consumer spending grew more slowly, Xie reported, suggesting Beijing still faced problems in its effort to cool off an investment boom and reduce China’s reliance on exports by boosting domestic consumption.

“Outstanding problems still exist with the irrational relationship between investment and consumption, the imbalance of payments and excess liquidity in the banking system,” Xie said.

In efforts to boost consumer spending, he said, “we are still not seeing significant results”.

Investment in real estate grew by 21.8% – 0.9 of a percentage point above 2005’s growth rate – while overall investment in assets was up 24%, Xie said. He said retail sales grew at an annual rate of 13.7%, a slightly faster rate than 2005.

Worried that runaway spending could spark inflation or a debt crisis, the government has raised interest rates twice, repeatedly tightened bank credit and imposed curbs on investment in real estate, auto factories and other projects.

Fourth quarter growth slowed slightly, but not much. Gross domestic product expanded 10.4% in the three months through December, down from a decade-high 11.5% in the second quarter to the third quarter’s 10.6%.