China's economy grew 10.6% in Q1 2008, the Xinhua News Agency reported Wednesday, citing National Bureau of Statistics research, a pace well above what Chinese Government's ceiling for 2008 GDP growth.

Further consumer prices increased at annualized rate of 8.3% during March 2008, Xinhua reported, as China's infrastructure development and consumer demand for goods/service continued to place upward pressure on commodities and retail prices. China's GDP grew 11.9% in 2007.

In Q1 2008, industrial production jumped 16.4%, while investment in fixed assets, a category that covers categories from housing to new factory equipment, surged 24.6%.



Immediately after the data was released, China's central bank, the Peoples Bank of China, increased the proportion of deposits that lenders must set aside as reserves to 16% -- a record -- in a further attempt to cool an economy that has grown more than 10% for almost three years.

Economist David H. Wang told BloggingStocks Wednesday that despite the central government's efforts to cool the economy, including six interest rate hikes in 2007, both economic growth and inflation remain at near "out of control" levels.

Tale of two economies

"As hard as it has been to identify growth engines for the U.S. economy these days, it's been equally hard or harder for China to slow its economy," Wang said. "Inflation is way too high, commodity prices both in China and internationally continue to be pressured by the growth, and there's still too much investment coming in to the country."

Wang said more increases in bank reserve ratio requirements are likely up ahead, along with other regulations to slow the flow of investment. However, China is not likely to let its currency, the yuan, appreciate more rapidly than the present plan allows, he said. The yuan closed at 6.9918 yuan to the dollar Wednesday night; China has let the yuan appreciate about 4% this year.

"China's growth has been bitter-sweet," Wang said. "On the one hand, the world needs China as a growth engine. On the other hand, the growth has to occur at a slower pace to allow commodity production to catch up and lower commodity prices and inflation, which is why I am confident China's government will place more restrictions on investment in 2008."