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China's gross domestic product grew more than forecasts in the fourth quarter of last year, while the full year growth rate topped the government's target of 8% for 2009. This year's growth came alongside a rebounding manufacturing output and rising retail sales, as they both improved since domestic and world demand strengthened. Yet, inflation accelerated that may threaten recovery in the world's fastest growing major economy, to signal the importance of controlling lending growth.

China's gross domestic product grew 10.7% in the quarter ended December, from the same period last year, after growing 8.9% in the third quarter that was revised to 9.1%. The nation's GDP grew more than analysts' estimates of 10.5%. For the full year, the Chinese economy expanded 8.7% to top the government's target of 8.0%.

Today's growth may pressure monetary policy makers in China to raise the benchmark interest rate and tighten restrictions on banks to control credit growth. The People's Bank of China decided last week to force banks to raise their deposits starting January 18 by 0.5%, as the bank aims at avoiding an asset bubble formation that may affect recovery negatively.

However, the central bank's decision is the first of its kind since June 2008, and it was expected to be imposed in April, but the critical threatens of accelerating inflation, pressured policy makers to start acting towards protecting the economy from inflationary pressures through tightening restrictions on banks, worth mentioning that the reserve ratio for bigger banks is now 16.0%.

Consumer prices in China climbed 1.9% in December from a year earlier, following an incline by 0.6%, and it was expected to gain 1.4%. Producer prices jumped 1.7% in December from a year ago, while it declined 2.1% in November, and analysts' estimates referred to 0.7%. Regarding the purchasing price index, it inclined 3.0% last month from -3.6%, and it came higher than the forecasted 0.5%.

The chairman of the China Banking Regulatory Commission said yesterday that China will control credit growth to reach 7.5 trillion yuan ($1.1 trillion) this year, while he added that some banks were told to limit lending. This came after the record $1.3 trillion loans obtained in the first 11 months of 2009.

Moreover, China's manufacturing output (YoY) rebounded 18.5% last month, to rise in a slower pace than the previous 19.2%, and it came below the projected 19.6%. On the other hand, retail sales jumped 17.5% in December form a year earlier compared with a previous 15.8%, and it topped the forecasted 16.3%.

China's stimulus plan of 4 trillion yuan managed to strengthen the interior front and boost consumer spending in the world's most populated country. China replaced the U.S to become the world's largest auto market in 2009, having vehicle sales rising 46% to 13.6 million units in December.

Nevertheless, exports rose 17.7% in December from a year earlier, adding to clear signs of recovery in the world's fastest growing major economy. Rising exports encouraged manufacturers to increase output especially with demand in Europe, Asia and the U.S picking up, after governments revived markets through more than $2 trillion of stimulus spending.

Yet, China is expected to take Japan's place this year to be the world's second largest economy behind the U.S, especially with a continuous rebound in manufacturing output and advancing exports to continue leading recovery in the Asian region.