Can China ever surprise us with its growth numbers?  Apparently so.  GDP growth was unexpectedly high in 2nd quarter, which led to an upgrade in GDP forecasts for the year.  Most forecasts now expect GDP growth in the range of 11.0% to 11.9% for 2007, with the World Bank predicting 11.3%.

On the other side of the coin, inflation reached 6.5% the year ended August, on the back of a pork shortage, China’s staple meat.

The People’s Bank of China (PBC) raised the benchmark interest rate for Renminbi on 3 August.  The rate for one-year deposit was raised from 3.06% to 3.33% and that for one-year lending from 6.57% to 6.84%.

Finance Minister Jin Renqing resigned on 30 August.  While the factors attributed to his resignation are still unknown, monetary policy is likely to remain the same.  The screws are expected to be tightened again at the next policy meeting to put a lid on inflation.

Expectations have a major impact on the performance of the Chinese economy.  The Economist recently ranked the factors that most concern businesses in China.  Inefficient government (2nd) and poor data/information or market research (5th) are among the top five concerns. 

In late July, the Bankers Questionnaire Survey (BQS) recorded a historical low of bankers’ expectations about future macroeconomic performance.  Nevertheless, there is overall optimism that the financial situation will remain stable and that returns will be sound.

Uncertainties surrounding policy changes in China remain the biggest worry for overseas investors.  The current situation facing policy makers in China suggests the need to improve government credibility to be a necessary step.  Some suggest restructuring the public sector and formalizing policy-making procedures would help restore faith in the government.