China's brisk economy has continued its roaring trend, with its domestic gross product jumping by 10.9 per cent in the first six months this year, despite a string of government orchested attempts to rein in cheap credit and excessive investment.

Thanks to an affluent supply of food and raw production materials, China achieved a lowered rate of inflation, with the consumer product index (CPI), a major gauge of the inflationary pressure, rising at only 1.3 per cent in the first half year.

With the inflationry pressure not on a mounting spiral, Chinese analysts said that it is still too early to predict an immediate interest rate hike by the country's central bank to tighten borrowing from the commercial banks.

Zheng Jingping, a spokesman from the National Bureau of Statistics, said Tuesday morning at a news conference sponsored by the State Council Information Office in Beijing, that China's GDP hit a total of US$1.15 trillion in the first half year, up 10.9 percent over the same period last year. It grew 11.3% in the second quarter.

China can sustain such "fast and stable growth" but must rein in a construction boom and rapid credit growth to prevent an outbreak of inflation, Zheng said.

He announced that fixed asset investment witnessed a lofty rise of 29.8 percent in the first six months, picking up speed from last year and further revealing the difficulties in reining in some heated industrial sectors like property, automobile, steel and cement.

Although many observers overseas caution China, the world's fastest growing major economy, may have entered a hectic phase of breakneck development, Zheng, the government spokesman, expressed confidence that China's economy will have a smooth sailing ahead.

"We believe the economic growth rate at the current stage is reasonable," Zheng said at a news conference.

He picked up three major economic indicators to support himself: lowered inflationary pressure which saw prices actually declining; improved situation in the previous "bottleneck" sectors like market supply of coal, electricity, oil and transport; and reinvigorated robust economic growth outside China.

Zheng said that China's rapid economic growth is reasonable and basically healthy, because the worldwide economy is booming. Major world economic organs have estimated the world's economy will rise 4.9% in 2006, growing 0.6% than a year ago.

Another factor that has contributed to China's fast growing economy is the domestic consumption. Zheng reported that retail sales reached US$456 billion dollars in the first six months of the year, increasing a remarkable 13.3 per cent over the same period last year.

Masahiro Kawai, head of the Asian Development Bank's Office of Regional Economic Integration, said China, the biggest engine in East Asia, needs to restrain its robust growth.

"A high growth rate is good for the rest of the Asian economies, but it's in the best interest of everybody to see China's sustained, stable growth rates, and the current growth rates are a bit higher than sustainable," he said.

"We have not quite seen the direct impact of monetary tightening so far ... the current monetary policy tightening appears to be insufficient," Kawai said, adding an April hike in interest rates has not tamed loan growth.

Analysts said the economy had built up such a head of steam that, barring a dramatic policy tightening that would be out of character for China's cautious planners, growth was unlikely to slow much in the rest of the year.

China's imports increased to US$367 billion in the first half year, rising more than 21 percent. Total imports and exports hit nearly US$800 billion, leaving China a trade surplus of US$61.4 billion.

China's economic growth figures are good news for world commodity markets which are enjoying record prices. However, some analysts worry that if the economy is speeding ahead at this rate, the Chinese government will react with further tightening measures that could introduce volatility in commodity prices over the medium term.

We forecast 10 percent gross domestic product growth this year but the quality is lacking: too much liquidity and over-investment have led to excess capacity in many industries," Lehman Brothers said in a research note.

"The recent tightening measures may have some short-term impact but to properly deal with liquidity, a stronger renminbi (yuan) and higher interest rates are needed," it added.

Zheng, the government spokesman, siad the government has not yet decided whether to increase interests rate in the third quarter of this year since the government is still waiting to see effects of the latest stringent monetary policy.

Asked whether China would immediately jack up the interest rates again, Zheng said the central bank would make a correct judgement in line with relevant information.

A series of macro control measures have been launched by the government in the past months, such as the central bank's raising of the benchmark lending rates by 27 basis points in late April and the recent hike of reserve ratio for commercial banks by 0.5 percentage points.

"The macro control policies are showing their effects step by step, but we need to further observe the market before launching new decisions for further control measures, since some policies have been in operation even less than one month," said Zheng.

Zheng admitted that the rapid growth of money supply and lending has been a major problem in China's economic growth, and a stringent monetary policy must be adopted by the government to ease the soaring investment and lending.

In the first six months, China's import and export volume amounted to US$795.7 billion, rising 23.4% year-on-year or 0.2 percentage points faster than the same period last year.

Of this amount, Zheng said, the exports stood at US$428.6 billion, while imports were valued at US$367.1 billion. This meant China had a trade surplus of US$61.4 billion in the period.

And in the January-June period, China actually used US$28.4 billion of foreign investment, a drop of 0.5%. At the end of June, China's foreign exchange reserve amounted to US$941.1 billion, an increase of US$122.2 billion compared to the beginning of this year.

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.

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

The following are some key points of Zheng Jingping's press conference

Forex Reserves

"In the past, when foreign investors made profits in China they often transferred the money to other countries, but now due to the improvement of the Chinese market they can make good profits here, so they often reinvest in China.

"The Chinese government does not intend to have a high level of forex reserves. On the contrary, the Chinese government has introduced policies to bring greater balance to foreign trade and made adjustments to capital flows, including the introduction of the qualified domestic institutional investor scheme.

"The intention of these policies is to tone down the growth of forex reserves.

"We also need help from other countries to allow us to import high-tech products from them. So I believe that these policies by the central government, if they are implemented effectively, will help bring about stable growth in forex reserves."

FOREIGN TRADE

"The Chinese government has the measures, the confidence and the ability to improve its trade by strengthening import and export management, especially by implementing trade-tax policies.

"Because of the unique feature of the processing industry accounting for more than half of foreign trade, it's hard to see balanced foreign trade in the short run, and it's even harder to see a trade deficit because of the high proportion of processing industry in our trade."

FDI

He said foreign direct investment has dipped because governments at all levels have been standardising environmental and land use standards. Domestic capital has been ample and many other countries have enhanced policies to attract FDI.

"Finally, in recent years inflows of FDI have been around $60 billion a year, so it's difficult to realise rapid growth based on such a high base figure.

"I think FDI growth in this year will maintain the level of last year.

"Because of the many years of FDI inflows, we need time to digest it to make good use of the investment. At the current stage, I think it's good to improve the balance of payments situation. We still welcome foreign investors to invest in China."

GROWTH

"As for overall economic performance for the whole year, our belief is that the overall situation is good, but growth is a little fast.

"The overall situation is good because industrial efficiency is increasing, financial revenue is up and profits are up. Also, the incomes of both urban and rural residents increased to some extent. Some of the bottlenecks in coal production and transport have been alleviated, and prices are growing moderately."

He said one reason for the fast growth is that this is the first year of the 11th five-year plan, so local governments are investing to boost their local economies.

"As I said, investment in fixed assets is rapid, boosting capacity, so we have ample supply. And as you can see, we have booming demand from various fields, so it's inevitable to have such rapid growth at this stage.

"Looking at economic growth in the second half, there are factors that would both slow and support the continuing strong growth of the economy."

The lagged impact of tightening measures and curbs on property speculation could slow the economy.

"And some exporters have also sped up their exports in advance of changes to the export tax rebate system.

"Another thing is that interest rates are a global phenomenon, and many economies have started to tighten policy, so that will have some impact.

"We should mainly rely on economic and legal measures, and use some administrative measures to guard against overly rapid growth. If we can use such combined measures, economic growth in the second half can be both rapid and stable."

INVESTMENT

"Overly rapid investment growth will lead to over-production capacity, which will create financial risks. Also, some of the projects are not good enough.

"Either they're redundant or their rate of return is too low.

"This kind of resource-intensive growth pattern is not scientific and has already aroused the attention of policy makers, who have begun to implement measures to deal with this problem.

INFLATION

"Because the allocation of production factors is becoming more globalised, that reduces the cost of production. For example, a financial analyst working on Wall Street might earn $200,000 a year, but if we hire one in India, the salary might drop by half or more.

"High investment in fixed assets is another reason. So price rises in upstream products are difficult to pass on to consumers. And right now, efforts to improve environmental protection and set up a social security system are not enough. So the low cost of production is in part a result of ineffective policies.

"Another reason is that because of past investment in fixed assets, we now have an overcapacity problem. "The causes of low CPI growth are still there in the short run, so we do not expect a big rise in consumer prices in the rest of the year -- that would not be realistic. However, I do expect prices to rise eventually.

TIGHTENING TIMETABLE

"The central bank will wait for the relevant information to make their own decisions."

"These things, if you look at them, some of them are starting to show results, for example, the latest one was July 5. There's a time lag for those measures to have an impact on economic performance. So we need time to see their impact. But the figures for June show that the measures have already started to take effect. For example, loan growth was down in June."

LIQUIDITY

"Indeed, liquidity is quite high and credit issuing is quite fast, and these are quite pronounced problems in economic life at present. * "China will also address the liquidity problem stemming from excessive foreign exchange reserves by taking measures involving foreign exchange management and sterilisation."

YUAN

"The reform of the yuan's exchange rate mechanism has been successful. We can see it is now more flexible, with ups and downs against the dollar.

"With the Chinese economy more and more part of the global economy, the issue of the yuan's exchange rate is closely related to the global economy and international issues, so if there are any problems in China's financial system, that would affect the world's financial system. Investors in and outside of China are aware of that, and of the importance of these issues.

"An administered, one-off yuan appreciation or depreciation will never happen again. There will be no more surprises.

"People who want...to wager on a yuan appreciation and so on are doomed to fail."