Rapid growth, higher prices suggest policy tightening coming By Chris Oliver, MarketWatch HONG KONG (MarketWatch) -- Chinese data released Thursday showed economic growth powered higher in the fourth quarter, putting the full-year figure above forecasts, while inflation surprised to the upside, suggesting recovery is continuing but fiscal and monetary policy may need to be tightened. China's economy expanded 8.7% in 2009, slightly ahead of expectations and exceeding the official growth target of 8% for the year, as massive fiscal stimulus and bank lending helped the economy escape recession in spite of a drop in global trade. The full-year growth rate was ahead of the 8.5% consensus expectation, but below the 9.6% recorded in 2008, according to data released by the National Bureau of Statistics. Ahead of the Thursday's data, talk among analysts was that a stellar quarter could elevate China over Japan as the world's second-largest economy. Calculations by Bank of America Merrill Lynch showed China has narrowed the gap at $4.909 trillion, but has yet to supersede Japan's $5.126 trillion, according to International Monetary Fund estimates for 2009. Japan is due to release preliminary 2009 GDP figures Feb.15. China, however, has a tradition of significantly revising its preliminary GDP growth rate. In January last year it revised its 2007 GDP growth to 13% from 11.9%, a move that lifted its economy above Germany as the world's third largest. In December it revised its 2008 growth rate. For the fourth quarter, China's gross domestic product expanded 10.7% from a year earlier, slightly missing expectations for a 10.8% expansion in a poll by Dow Jones Newswires, and 10.9% growth in a separate survey by Reuters. J.P. Morgan's Jing Ulrich in Hong Kong said the trend points to continued recovery going forward. "It is likely that economic growth in 2010 will exceed 2009's level," Ulrich said in a note following the data release. She cautioned, however, that China's growth rate could face headwinds amid decelerating investment growth and stricter controls on government-related infrastructure projects. China stocks ended mixed on the news, with the Shanghai Composite nudging 0.2% higher, reversing part of its 2.9% slide in the prior session. In Hong Kong, stocks retreated with the mainland-focused Hang Seng China Enterprises Index closing 2.6% lower, while the Hang Seng Index fell 2%. Credit Suisse Chief Regional Economist Dong Tao cautioned that inflation expectations in China were rising in the aftermath of the lending boom and rapid gains in property prices. Though stronger than expected, Tao described Thursday's data as "not enough to make Beijing completely comfortable to accelerate the process of monetary tightening." In particular, export growth of 17.7% in December compared to the year-ago period was positive but short of what could be considered a slam-dunk recovery. "A sustained recovery in exports is crucial for China's labor market," Tao said. Prices up The data also showed inflationary pressures increasing, with the consumer-price index rising 1.9% in December, while the monthly producer-price index also ended a year-long declining trend to grow 1.7%.

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