Chinese economy grows 10.2 percent in first quarter ReceivedSPF: None receiver=nym.alias.net clientip=70.89.231.62 Comments

By Alan Wheatley, China Economics Editor

BEIJING (Reuters) - China's annual economic growth quickened to 10.2 percent in the first quarter, a blistering pace that could increase pressure on President Hu Jintao to let the yuan rise faster.

The figure, which Hu disclosed on Sunday during a televised meeting with Lien Chan, a former chairman of Taiwan's main opposition Nationalist Party, marks a pick-up from the fourth quarter of 2005, when gross domestic product rose 9.9 percent from a year earlier.

China's GDP expanded on average by 10 percent a year in 2003-2005, making it the fourth or fifth biggest economy in the world, but Hu said Beijing was not pursuing fast growth for its own sake.

"We are paying more attention to the transformation of the mode of growth, resource conservation, environmental protection and, more importantly, the improvement of the lives of the people," he said.

The National Bureau of Statistics will release detailed first-quarter figures on Thursday. Economists had pencilled in growth of around 10 percent after a raft of strong partial data.

Money supply is expanding well above target, loan growth is surging and, most notably, China's trade surplus grew 41 percent in the first quarter from a year earlier.

Gao Shanwen, chief economist at China Everbright Securities in Shanghai, said strong global growth was driving demand for Chinese goods, offsetting the impact of a cumulative 3.2 percent appreciation of the yuan against the dollar since July.

STRONGER YUAN "INEVITABLE"

America's trade deficit with China, which surged to a record $201.6 billion in 2005, is likely to be high on the agenda when Hu meets President George W. Bush at the White House on Thursday.

Some U.S. law-makers and economists contend the yuan is unfairly undervalued by as much as 40 percent, handing China an advantage on world markets that is destroying U.S. jobs.

"It's an inevitable trend that the yuan will be allowed to rise faster," Gao said.

He said China's growth could reach 10.5 percent this year, which would be the fastest rate since 1995.

From a purely domestic perspective, Gao said, the case was hardening for the authorities to cool growth, perhaps by requiring banks to tie up more cash with the central bank -- money that could therefore not be extended as credit.

"I think the authorities are very likely to raise bank reserve requirements in the near future," he said.

Leaders are increasingly worried about possible overheating.

A meeting of the state council, or cabinet, to take stock of the economy concluded that money supply was growing too fast and Credit Debt was too loose, according to a report of the discussion posted on the central government Web site (www.gov.cn) on Friday.

The report said China must restructure sectors plagued by overcapacity to control any further expansion, but it made no mention of specific measures to curb either Credit Debt or investment.

China needs fast growth to create jobs, and Arthur Kroeber, managing director of the China Economic Quarterly, said he expected the authorities, despite their rhetorical concern, to try to avoid tightening policy as long as possible.

"I don't think we're likely to see any significant slowing measures coming out in the next quarter. If you see continued acceleration of growth and very strong capital inflows, that's when they'll get worried," Kroeber said.

(Additional reporting by Victoria Bi and Kevin Yao)