China declared it is over the global crisis and signaled a shift in focus to controlling inflation, sparking concern it could hamper growth and the country's contribution to a worldwide rebound.
Economic growth accelerated to 10.7 percent in the final quarter of 2009, the government said Thursday, beating most forecasts and driving the full-year expansion to 8.7 percent. But inflation also picked up, driven by a jump in food costs amid a torrent of stimulus spending and bank lending.
The strong numbers keep China on a course to replace Japan sometime later this year as the world's second-largest economy after the U.S.
Chinese leaders say the fiscal largesse will continue this year but have ordered banks to curb credit after a surge in 2009 to a record 9.5 trillion yuan, or $1.39 trillion, in new loans. They worry that reckless lending has fueled overinvestment in some industries such as steel and cement and a possible bubble in stock and real estate prices, which are up sharply.
Most Asian stock markets dropped as investors worried whether Beijing can prevent overheating without hurting recovery in what is now the world's third-largest economy. Hong Kong's main index lost 2 percent.
"The Chinese authorities seem to be juggling knives at this juncture. Let's hope they don't cut themselves or drop the knives on the audience," said Thomas Lam, chief economist at financial services firm OSK-DMG in Singapore.
A solid Chinese recovery could help to drive a global rebound by boosting demand for imported oil, industrial raw materials and consumer goods. But inflation could disrupt that by eroding consumer spending power and pushing up the price of China's exports, hurting sales and demand for imports used to produce them — factory machinery from the United States, Germany and Japan or iron ore from Australia.
"We need to prevent overly fast price increases and closely watch the trend in consumer inflation," said Ma Jiantong, commissioner of the National Bureau of Statistics, at a news conference.
Inflation is politically sensitive in China, where it can erode the rising living standards that underpin the ruling Communist Party's claim to power.
Analysts said they expect Beijing to take new steps to control credit through tighter restrictions on lending and ordering banks to set aside still more reserves following an increase last week.
They said an interest rate hike is likely but probably not until the second half, because Chinese leaders need to create jobs and worry about weak global demand.
"We think the strong inflation trend is likely to continue," Credit Suisse economist Dong Tao said in a report. The economic improvement "is not enough to make Beijing completely comfortable to accelerate the process of monetary tightening, as the external environment remains fragile."
Economists also say China's central bank is unlikely to raise rates until the U.S. Federal Reserve does so, which Beijing would take as confirmation the American and global economies are recovering.
Ma, the statistics official, declined to say when the central bank might raise rates but said Beijing would avoid major policy changes.
China was one of the healthiest economies heading into the crisis in 2008 and was widely expected to be the first to emerge. Its banks were unhurt by mortgage-related turmoil that battered Western lenders and government debt was low compared with other major economies.
That gave Beijing latitude to launch a 4 trillion yuan ($586 billion) stimulus that pumped money into the economy through public works spending, tax cuts, subsidies to car buyers and aid to industries.
"China has become the first, on the whole, to achieve recovery and stabilization in its economy," Ma said.
The data Thursday showed consumer spending picking up, possibly reducing the need for stimulus money to drive growth. December retail sales rose 17.5 percent from a year earlier, up from November's 15.8 percent growth.
Consumer inflation started to rise in the final quarter after falling for most of the year, with November consumer prices rising 0.6 percent from a year earlier. That rate jumped to 1.9 percent in December, driven by a 5 percent rise in food prices.
That was the sharpest one-month increase since February 2008, a period of record inflation, according to Citigroup economist Ken Peng.
China's total 2009 gross domestic output was 33.5 trillion yuan ($4.9 trillion), bringing it closer to overtaking Japan as the second-largest economy after the United States. Exactly when that will happen depends on the numbers from Tokyo — Japan is due to report its own 2009 growth on Feb. 15.
Nevertheless, Ma said China is still poor on an income per person basis. Average income for city dwellers in 2009 was 18,858 yuan ($2,700), while in the populous countryside it was just 5,153 yuan ($752).
"Despite the increase in our GDP and economic strength, we still have to recognize that China is a developing country," he said. "We have to be keenly aware of that."