China signals caution in stimulus exit even amid rapid growth

China’s cabinet said “rapid” first-quarter growth was largely driven by stimulus spending and a comparison with a low level a year earlier, suggesting policy makers may be cautious in ending crisis policies.

The State Council’s statement, posted on a government Web site this evening, was after a meeting chaired by Premier Wen Jiabao to discuss economic numbers to be released in Beijing tomorrow.

China’s economy grew 11.7 per cent in the first quarter from a year earlier, the fastest pace in almost three years, according to the median estimate in a Bloomberg News survey of 24 economists. Speculation intensified this month that China could let its currency rise to cool inflation pressures, a step that Singapore took today.

“Growth is strong but they are going to be careful withdrawing stimulus,” said David Cohen, an economist with Action Economics in Singapore. “They’re not going to launch a broad tightening.”

The world’s fastest-growing major economy had a good start to the year, cementing its rebound as foreign trade recovered and prices remained basically stable, the State Council said. Challenges include overseas sovereign-debt risks, high commodity prices, strengthening inflation expectations and potential fiscal and financial risks, the cabinet said.

The State Council reaffirmed a moderately loose monetary policy and a proactive fiscal policy and repeated pledges to crack down on excessive home-price gains and to maintain “appropriate” credit growth.

“Currently, the environment for economic development is extremely complex,” the cabinet said. “The rapid growth is largely a result of policy stimulus and also due to the relatively low base in the same period of last year.”