China grows 10.2 percent in first quarter, Japanese trade surplus shrinks in March

China's economic growth shows few signs of slowing. From People's Daily Online:

China's economy soared by 10.2 percent in the first quarter, fueled by strong investment, a government spokesman said Thursday, dismissing fears that the economy might be overheating.

Gross domestic product, the broadest measure of goods and services output, reached 4.33 trillion yuan (540 billion U.S. dollars), said Zheng Jingping, of the National Bureau of Statistics.

Investment was a major growth driver.

Investment in roads, factory equipment and other fixed assets totaled 1.39 trillion yuan, growing a sharp 27.7 percent, or an increase of 4.9 percentage points year on year.

Investment in urban areas climbed 29.8 percent to 1.16 trillion yuan, while that in rural areas came to 230 billion yuan, up 18.1 percent...

So was trade.

The growth of imports picked up tangibly, surging 24.8 percent in the quarter to 174 billion U.S. dollars, or a year-on-year rise of 12.6 percentage points...

China recorded a surplus of 23.3 billion dollars in the first quarter as exports grew 26.6 percent to 197.3 billion dollars, down 8.3 percentage points from a year earlier.

The income gap grew.

Urban dwellers reaped a 10.8 percent increase in disposable income, 2.2 percentage points higher year on year, while the growth in farmers' income fell 0.4 percentage points to 11.5 percent. Analysts say the rich-poor gap has yet to be closed.

Another report showed that house prices continued to rise.

The housing prices in 70 large and medium Chinese cities rose by 5.5 percent compared with the previous year in the first quarter of 2006, the National Development and Reform Commission (NDRC) announced on Thursday.

But consumer price inflation slowed from the previous year.

China's consumer price index (CPI) rose 1.2 percent in the first quarter of this year, down by 1.6 percentage points year-on-year, the National Bureau of Statistics said in Beijign on Thursday.

Morgan Stanley thinks that this is "sound evidence of overcapacity in a large number of sectors, resulting from excessive investment over the past few years", and that "further indulgence in the construction boom will leave China with more excess capacity and the risk of a harder landing in 2007-08".

The other risk for China is trade protectionism, particularly from the US, largely arising from perceived misalignment in the Chinese currency. Menzie Chinn at Econbrowser questions whether there is indeed misalignment, and if there is, whether, in the absence of capital controls, the equilibrium renminbi exchange rate might actually be weaker than what we currently see.

But at least one country appears to be gaining from the China trade: Japan. From AFP/CNA:

In March...the trade surplus shrank for a 15th consecutive month, dropping 11.9 percent year-on-year to 978.1 billion yen as oil prices continued to drive up the cost of imports...

Exports rose 18.1 percent to 6.82 trillion yen in March while imports jumped 25.2 percent to 5.84 trillion yen. Crude oil imports alone jumped 59.6 percent.

At the same time, Japanese exports continued to show healthy growth, with all-important auto exports expanding 26.7 percent thanks to solid overseas demand, the ministry said.

Exports in the month to Asia rose 17.8 percent to 3.27 trillion yen, with shipments to China up 32.4 percent to a record 973.9 billion yen.

US-bound exports rose 16.4 percent to an all-time best 1.50 trillion yen.