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China's economy set to be world's third-largest

China's economy grew so rapidly in the first half of this year that it is likely to overtake Germany as the world's third-largest by the end of the year, analysts said.

The release on Wednesday of January to June figures for Asia's second biggest economy will provide fresh evidence that Beijing's economic braking measures have had little effect.

China's sizzling economy expanded even faster than originally thought last year, with the government revising last year's GDP growth to 11.1 percent from 10.7 percent.

Data released by China's statistics bureau last week showed the economy was worth 21.09 trillion yuan (US$2.65 trillion) last year.

The revision puts China in striking distance of Europe's largest economy within months.

"With this upward revision, it is highly likely that China will bypass Germany to become the third-largest economy in the world in current US dollar terms by the end of this year," said Hong Liang (梁紅), an economist at Goldman Sachs.

According to the World Bank, Germany's economy was worth US$2.9 trillion at the end of last year.

Economists expect GDP in the second quarter to near or equal its breathtaking January to March pace of 11.1 percent growth.

JP Morgan Chase Bank economist Wang Qian put the second-quarter acceleration at 10.6 percent, and said it would pick up speed in the second half of the year.

"We don't see any sector of the economy slowing down. It's firing on all cylinders," Wang said.

The torrid pace of development means that China's economic czars will once again have to devise fresh ways to prevent the export powerhouse from the kind of overheating that could trigger a slide into financial crisis.

Regulators have already introduced a range of piecemeal administrative measures to slow the economy, including two interest rate hikes, five increases in bank reserve requirements and new export curbs.

Exports, one of Beijing's biggest headaches given the friction it causes with its two largest trade partners, the EU and the US, have continued to flood international markets.

The widening trade gap is on route to becoming the globe's largest ever after Beijing announced last week that its surplus had jumped more than 85 percent in June to US$26.91 billion.

Although the June figure was partly due to factories rushing to beat new curbs on exports that took effect July 1, the huge global demand for Chinese goods means the surplus will expand through the rest of the year, analysts said.

"China has become the world's factory for manufactured consumer goods," said Qu Hongbin (屈宏斌), a senior economist at HSBC in Hong Kong. "If global consumer demand remains then Chinese exports will grow. There is not a lot that government policy can do about that."

Washington and Brussels believe one step to staunching the tide of Chinese goods would be greater appreciation in the currency, which trade partners say is artificially low and therefore boosts China's business competitiveness.

But China's autocratic leadership fears that could destabilize its financial system, making such a step highly unlikely, in keeping with the government's repeated position of allowing the yuan to rise slowly.

Earlier this month the nation's top economic planner said China must tighten its macroeconomic controls in the second half of the year in the face of growing financial risks.

"The trend is of an economy that is moving from a bias of fast growth to overheating," said a research arm of the National Development and Reform Commission.

Li Huiyong (李慧勇), chief analyst at Shenyin Wanguo Securities (申銀萬國證券) in Shanghai, said the government had to get cracking.

"At the moment, there is no obvious change to the overheated economy, with inflation and investment [levels] likely to jump," Li said. "Under such circumstances, the major task is to prevent further overheating and strengthen controlling measures."

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