China’s sizzling end to 2010 calls for tighter policy

China finished 2010 with a bang, its growth soaring past forecasts and inflation slowing less than expected, numbers that could prod the government to intensify its easy-does-it approach to tightening.

Evidence of robust growth may give officials confidence to take more aggressive steps to quell price pressures, from stricter lending curbs to interest rate rises, as rising food costs in recent weeks suggest inflation will rebound in coming months.

China’s annual gross domestic product growth sped up in the fourth quarter to 9.8 percent from 9.6 percent in the third quarter, the National Bureau of Statistics (NBS) said on Thursday, defying expectations for a slowdown to 9.2 percent.

“Inflation pressure is intensifying into January and the tightening pressure will intensify, especially considering the stronger-than-expected fourth-quarter GDP growth,” said Isaac Meng, economist with BNP Paribas in Beijing.

Full-year growth picked up to 10.3 percent from 9.2 percent in 2009.

With President Hu Jintao on a state visit to the United States, the figures served as a powerful reminder that despite controversy about China’s vast trade surplus, its economy is far from dependent on exports.

Domestic investment and consumption contributed 9.5 percentage points to its growth last year, while net exports added just 0.8 percentage point.

Consumer prices in December rose 4.6 percent from a year earlier, slowing from a 28-month high of 5.1 percent in November but staying above forecasts for a steeper fall to 4.4 percent.

Other important data for December, from factory output to investment, painted a picture of stable expansion, showing that the world’s second-largest economy was not overheating despite the surprise jump in growth.

Although the growth and inflation figures had been published in advance by local media, China’s main stock index shed 2.9 percent as investors viewed the strong set of data as bolstering the case for tightening.