China's economy surged a year-on-year 10.9 percent in the first half of 2006, the National Bureau of Statistics (NBS) revealed Tuesday, roaring ahead despite a slew of measures imposed by the government to ease the blistering growth of investment.

Total gross domestic product between January and June reached 9.14 trillion yuan (US$1.14 trillion), NBS spokesman Zheng Jingping told a press conference in Beijing Tuesday morning.

Growth stood at 11.3 percent for the second quarter alone.

A number of economists, in interviews with Xinhua, acknowledged the growth was alarmingly high, but Zheng played it down, saying such high rates were also reported in previous years.

"As for the current economic situation, generally speaking, we believe that it is fairly sound, and also fairly fast," he said.

Inflation remained moderate, with the key consumer price index (CPI) rising only 1.3 percent from a year earlier. "The CPI was running at a fairly low level," Zheng said.

But Zheng warned of high producer prices, a harbinger that would put pressure on a CPI rise. He said excessive growth of investment would also ignite inflation.

China's macro-economy presents "obvious overheating of investment" in the first half of this year, Wang Xiaoguang, a macroeconomics professor at the economic research institute of the National Development and Reform Commission, told Xinhua.

Total investment in roads, factory equipment and other fixed assets soared 29.8 percent, an increase of 4.4 percentage points from the same period of last year.

"The overheating is all-round, in nearly all industries and all regions of the country," Wang said, urging the government to move to control the trend.

Tao Dong, an economist with Credit Suisse in Hong Kong, echoed his remarks, acknowledging the rebound in investment in fixed assets is a "problem" in China's economy.

Frank Gong, an economist with JP Morgan in Hong Kong, blamed the overheated investment on excessive money supply brought by soaring foreign exchange reserves.

Under China's currency controls, the central bank has to buy a big part of foreign currency earnings by enterprises, which has already helped China build up the world's biggest foreign exchange reserves, reaching an equivalent of 941.1 billion U.S. dollars at the end of June, while ballooning money supply.

Gong said he believes the fundamental solution (to overheated money supply and investment) is to accelerate the appreciation of the renminbi, which, theoretically, will reduce the money unleashed by the central bank in buying foreign exchanges.

Tao said one of the measures, which should be taken to contain the overheating economy, is to raise the interest rates by a big enough margin, as a way of squeezing the lending capacities of commercial banks. China hiked the rates moderately by 27 base points in April.

Asked by a reporter on whether China would immediately jack up the interest rates again, the NBS spokesman said the central bank would make a correct judgment in line with relevant information.

A series of austerity measures taken by the government, including an increase of down payment requirement for house purchases, have worked in the second quarter, and their effects could be felt later, he said.

Bank loans issued in June, for instance, were 60.7 billion yuan less than the same period of last year, the central bank said earlier.

The NBS figures showed that from January to June, China's exports amounted to 428.6 billion U.S. dollars, up 25.2 percent year on year, or 7.5 percentage points lower than the same period of 2005.

The country's import value stood at 367.1 billion dollars, an increase of 21.3 percent, or 7.3 percentage points higher than the January-June period of last year. Trade surplus was 61.4 billion dollars.

Zheng did not provide China's surplus with the United States. American manufactures are contending that China's currency was made artificially lower, making Chinese exports cheaper.

Materialized foreign investment fell a slight 0.5 percent. Zheng said the figure keeps "basically the same level" with a year ago.

The spokesman called investment-driven growth pattern "unsustainable". He said economic growth is ultimately intended to improve the people's livelihood and increase consumption.

In the first half, total retail sales reached 3.64 trillion yuan, a rise of 13.3 percent, the NBS figures show.

(Xinhua News Agency July 18, 2006)