Increased activity has spurred the Chinese economy to grow 11.3 per cent in the second quarter. This is the fastest it has grown in more than a decade.
Spending on factories and real estate picked up pace in June, helping the gross domestic product to surpass all economic forecasts. Fixed-asset investment in China’s towns and cities jumped 31.3 per cent in the first half from a year earlier, while industrial production rose 19.5 per cent in June. The report, released by the statistics bureau, fuelled speculation that the central bank will raise lending rates for a second time this year and order banks to rein in credit. However, the bank will not revalue the yuan, a year after ending its peg to the US dollar.
But this may not be all good news for China. The Asian Development Bank has expressed its concerns over China’s overheating economy. Masahiro Kawai, head of the bank’s Office of Regional Economic Integration, opined that China should grow at a stable rate and “the current growth rates are a bit higher than sustainable.” He also advised the Chinese government to combat overheating by setting stricter reserve requirements for banks, raising interest rates further and allowing the yuan to appreciate more. Another measure he suggested was that China should scale back its pace of foreign currency reserves, which is on pace to surpass USD 1 trillion this year.
Meanwhile, the US trade deficit widened less than expected. The Commerce Department announced that the gap in goods and services trade widened 0.8 per cent to USD 63.8 billion. The shortfall with China has also widened. Though the dollar has fallen a little, faster economic growth in Europe and Asia will stimulate exports to rise and help level the deficit.

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