(Shanghai Daily)
Updated: 2007-07-18 09:06

China's economy may have expanded 11 percent in the second quarter, increasing the likelihood the central bank will raise interest rates for a third time this year to cool inflation and investment.

That's the median forecast of 23 economists surveyed by Bloomberg News, and close to the 11.1-percent pace of the previous three months. The government is due to announce gross domestic product tomorrow in Beijing.

A record trade surplus has fanned tensions with the United States and Europe and flooded the world's fourth-largest economy with cash.

Premier Wen Jiabao said last month that "moderate" tightening is needed after inflation reached a 27-month high and factory spending surged.

"Investment is overheated," said Amy Auster, senior economist at ANZ Banking Group in Melbourne. "Inflation will accelerate in the next few months, and this will mean further cooling measures and monetary policy tightening."

Besides raising interest rates, the central bank has ordered lenders to set aside more reserves five times this year.

The economy, driven by exports and investment, is close to replacing Germany as the world's third largest.

Gross domestic product expanded 11.1 percent in 2006 to 21.09 trillion yuan (US$2.79 trillion). Germany's economy was valued at US$2.89 trillion.

Trading partners want China to boost imports and have called for the yuan to appreciate faster to make exports more expensive.

"Despite a series of policy tightening moves, the Chinese economy has continued to boom, boosted by accelerating exports and strong growth in fixed-asset investment," said Wang Qian, an economist at JPMorgan Chase & Co in Hong Kong.

Wang expects lending and deposit rates to rise by another 0.27 percentage point this year. The benchmark one-year lending rate is 6.57 percent and the deposit rate is 3.06 percent.

Wang also predicts that banks will have to set aside 12 percent of deposits as reserves.

Consumer prices were forecast to rise 3.6 percent in June from a year earlier as the cost of pork soared, the Bloomberg News survey showed.