China GDP growth jumps to 11.9 percent

By Tamora Vidaillet and Eadie Chen

BEIJING (Reuters) - China's annual economic growth surged to an 11-½ year high of 11.9 percent in the second quarter, cementing expectations for tighter policy to keep the world's fastest-growing major economy from overheating.

The figures put China on course to chalk up its straight fifth year of double-digit growth and to overtake Germany as the world's third-biggest economy -- perhaps as soon as this year.

"It's stunning. We should expect them to raise interest rates or reserve requirements at any moment," said Tim Condon, head of Asia research at Dutch bank ING in Singapore.

The spurt in gross domestic product growth from 11.1 percent in the first quarter blew past expectations of a 10.8 percent rise, data from the National Bureau of Statistics showed on Thursday.

"We will continue with moderate tightening to control the monetary and credit situation," Li Xiaochao, the statistics agency's spokesman, told reporters.

The data prompted a flurry of growth upgrades. Goldman Sachs, for one, now expects eye-popping growth of 12.3 percent in 2007.

Soaring costs of pork and grain pushed annual consumer price inflation to a 33-month high of 4.4 percent in June, beating expectations and accelerating from 3.4 percent in May.

Other figures also were stronger than expected: industrial output in June rose 19.4 percent from a year earlier, retail sales were up 16.0 percent and investment in urban areas was up 28.5 percent.

"Obviously, this puts even more pressure on the authorities to take prompt action to look at their strategy," Tai Hui, an economist with Standard Chartered Bank in Hong Kong, said.

"They may not call it overheating, but the truth is, these numbers are incredibly high," he said, describing 11.9 percent growth as "in the stratosphere".

A rate rise -- which would be the third this year -- could come as soon as Friday, said both Hui and Ben Simpfendorfer, an economist at Royal Bank of Scotland in Hong Kong.

The markets took the talk of imminent tightening calmly. The yuan edged up to 7.5632 per dollar from 7.5661 at Wednesday's close, while the stock exchange's main index closed 0.44 percent lower.

VARIETY OF COOLING TOOLS

Apart from raising interest rates and banks' required reserves, the central bank could suck cash out of the banking system by selling bills and lean on state banks to lend less.

Beijing could also withhold approval for new investment projects and tweak taxes to deter energy-intensive exports -- as it did on Thursday with aluminum.