July 11, 2007 / 1:07 PM / 12 years ago

UPDATE 2-China revises 2006 GDP growth up to 11.1 percent

(Adds details, reaction)

By Jason Subler and Eadie Chen

BEIJING, July 11 (Reuters) - China revised its 2006 economic growth data on Wednesday to a 12-year high of 11.1 percent, from 10.7 percent, underscoring the strong momentum behind the world’s fourth-largest economy.

The announcement, about a week before the National Bureau of Statistics is due to report second-quarter gross domestic product (GDP) growth and other data for June, could complicate the way those figures are interpreted, economists said.

“As China has revised its GDP, it has actually reduced the pressure on the government to slow the economy, because a larger economic base for last year will help to lower the nominal growth rate,” said Zhao Qingming, an economist with China Construction Bank in Beijing.

The statistics agency said in a statement on its Web site (www.stats.gov.cn) the upward revision was due to greater output by the industrial and service sectors than initially reported.

Full-year growth in the services sector was revised up to 10.8 percent, from an initial estimate of 10.3 percent. Industry rose to 13.0 percent, from 12.5 percent.

The economy has grown by at least 10 percent for four years in a row. In the first quarter of this year, it expanded by 11.1 percent over the same period a year earlier.

The statistics agency said GDP had reached 21.09 trillion yuan ($2.79 trillion) in 2006. However, it said it would revise the figure once more, in line with regular practice.

SURPASSING GERMANY?

Hong Liang, China economist with Goldman Sachs in Hong Kong, said that with the revision, it was “highly likely” that China would bypass Germany to become the world’s third-largest economy in current dollar terms by the end of this year.

“On the other hand, this upward revision, taking place right before the release of 2Q2007 GDP next Wednesday, may cause some complications in how to assess the current state of macro affairs,” Liang wrote in a note to clients.

Liang said that given the revisions, GDP growth itself might not be a very good indication of whether the economy was growing too quickly.

“However, we believe fast monetary expansion and rising inflation pressures have all pointed to some budding overheating pressures in the economy,” Liang said, adding that supported the case for decisive tightening in the near term.

To keep the economy from overheating, Beijing has introduced a raft of tightening measures, including four interest rate rises and eight increases in the proportion of deposits banks must hold in reserve since April 2006.

But many economists expect further steps sometime soon, as recent data have shown the economy is flush with cash and both investment and industrial output are surging.

Statistics released on Wednesday showed the broad M2 measure of money supply grew by an annual 17.1 percent in June, beyond the central bank’s comfort level of 16 percent, as the world’s largest foreign exchange reserves surged to $1.33 trillion at the end of June. [ID:nPEK87796]

But not all analysts thought the GDP revisions — which did not include a quarter-by-quarter breakdown — would influence the second-quarter numbers to be issued next week.

“It’s a normal procedure for China to revise its GDP growth. The upward revision will only make a marginal difference to the quarterly growth last year,” said Li Mingliang, an analyst with Haitong Securities in Shanghai.

“The overall picture of China is still one of fast growth this year — that will not change.”

Additional reporting by Langi Chiang and Zhou Xin

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