China on course to overtake Japan next year

China has raised its 2008 growth estimate to 9.6 per cent from 9 per cent and said this year's quarterly figures will increase, narrowing the gap with Japan, the world's second-biggest economy.

Gross domestic product was 31.405 trillion yuan ($6.5 trillion) last year, the Statistics Bureau said at a briefing in Beijing on Friday. That compares with a previous 30.067 trillion yuan and the World Bank's estimate of US$4.9 trillion ($6.9 trillion) for Japan.

China's expansion will be more than 8 per cent in 2009, according to government officials, and the nation is poised to overtake Japan next year, International Monetary Fund projections show.

The figures result from an economic census which showed a bigger contribution from services and continue a pattern of China revising up preliminary growth estimates.

"The big underlying factor propelling China's growth is the continued migration of people from the agricultural sector to the more modern economy - industry and services," said David Cohen, an economist at Action Economic in Singapore.

For 2009, revisions will mainly affect the value of the year's gross domestic product, with a "very small" impact on the growth rate, said Peng Zhilong, the head of the bureau's national economy calculation department.

China's expansion in 2008 compares with United States' growth of less than 1 per cent. Japan's gross domestic product shrank 1.2 per cent. The Indian economy expanded 6.7 per cent in the fiscal year ended March 2009.

This year, the Chinese economy grew 8.9 per cent in the third quarter from a year earlier, 7.9 per cent in the second and 6.1 per cent in the first.

The Government has pledged to maintain a "moderately loose" monetary policy in 2010 to sustain a rebound driven by a stimulus package and record lending.

The pace of growth is attracting more investment. Foreign direct investment climbed 32 per cent in November to US$7 billion from a year earlier. Luxury carmaker Bayerische Motoren Werke AG said last month that it would build a new factory worth 5 billion yuan in China to tap a vehicle market set to overtake the United States as the world's largest.

"Investors are anxious to participate in what remains, with India, the biggest story that's out there," Action Economics' Cohen said.

Yesterday's figures showed a 13.1 trillion yuan contribution from services in 2008, compared with 12 trillion yuan previously.

The census, intended to give a better picture of the economy's make-up, focused on industry and services rather than agriculture.

More revisions pending gross domestic product figures for 2005, 2006 and 2007 will also be revised as a result of the census, Peng said.

China's economy was 4.4 per cent bigger in 2008 than originally estimated, the new figures show. In comparison, a previous census in 2005 showed the statistics bureau had underestimated the size of the 2004 economy by 17 per cent.

Besides the census, China routinely carries out a first and second check of each set of annual figures for gross domestic product, issuing revisions where necessary.

In April last year, the bureau raised the growth figure for 2007 to 11.9 per cent from 11.4 per cent, citing larger estimates for the contribution from service industries such as telecommunications and retailing. In January this year, it raised the estimate again to 13 per cent.

"Upward revisions of China's GDP numbers are frequent, large and well expected, so we expect little market impact from today's revision," Lu Ting, a Hong Kong-based economist for Bank of America-Merrill Lynch said.

Energy Consumption China also revised energy consumption per unit of economic output in 2008, officials led by chief statistician Ma Jiantang said at the briefing.

The measure showed a drop of 5.2 per cent compared with an earlier estimate of a 4.59 per cent decline.

- BLOOMBERG