China's industrial output surged 18.1 percent in May from a year earlier, beating market forecasts and hardening the case for further policy tightening to tamp down the world's fastest-growing major economy.
Economists, who had expected output growth to ease to 17.1 percent from 17.4 percent in April, said comments late on Wednesday by Premier Wen Jiabao about rising inflationary pressures suggested the government could act swiftly.
"All the indicators are showing that the economy is on the verge of turning to overheating from fairly fast. Premier Wen also warned of that risk yesterday," said Chen Jijun, an analyst at CITIC Securities in Beijing.
Booming exports, sustained fixed-asset investment growth and accelerating retail sales mean factories are firing on all cylinders despite rising interest rates and a government campaign against energy-intensive, polluting industries. The economy expanded 11.1 percent in the first quarter, compared with a year earlier, and economists said figures so far pointed to another quarter of double-digit growth.
The National Bureau of Statistics said output of transport equipment rose by 27.1 percent from May 2006; motor vehicles by 25.7 percent; machinery by 23.5 percent and cement 20.7 percent.
Among possible policy measures, Chen said China could raise interest rates for the third time this year and increase for the sixth time the proportion of deposits that banks must hold in reserve instead of lending out. Consumer price inflation accelerated to 3.4 percent in the year to May, and Chen said policy makers now clearly believed that inflation was going to be a big issue.
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