Chinese government have to do more to cool down the economy
So far, the government seems to be taking the view that China's main problem is that property prices are too high, not that the total economy is overheating. Most of its policy measures in recent weeks have focused narrowly on reining in property speculation, while conspicuously avoiding broader measures - like interest rate hikes - that would affect everyone. Many outside observers, including the World Bank, think China still needs tighter overall monetary policy if it is to avoid inflation and overheating.

Official statistics show China's gross domestic product rose 11.9% from a r earlier in the first quarter. While that's a high figure by any standards, it was difficult to interpret the number because it was based on a comparison with the depths of the financial crisis.

Now the central bank tells us that the economy expanded at an annualized, seasonally-adjusted rate of 12.2% relative to the previous quarter, picking up from an estimated 11.3% annualized growth in the fourth quarter. That kind of comparison should in theory eliminate the base effect of comparing growth with early 2009, though not all economists are convinced by the central bank's estimates.
The central bank's new quarter-on-quarter number, if accurate, has some important implications. First, it shows that the rapid growth in the first quarter this r was not simply a statistical artifact caused by the slowdown last r. Second, it means growth actually accelerated in the first quarter despite the government's gradual withdrawal of its fiscal stimulus and regulators' orders to reduce new bank lending.

The conclusion that China's growth in demand is outpacing growth in supply is bolstered by the second interesting figure provided by the People's Bank of China: an estimate of the output gap in China's industrial sector. The central bank defines that as the difference between actual output and potential output, expressed as a percentage of potential output. If the output gap is positive, factories are running all out in response to high demand, which tends to push prices up; if the output gap is negative, factories are sitting idle with not enough customers, and prices would be pushed down.

The central bank says the output gap reached a positive 3.06% in March, the highest level since 1998 and the seventh straight month of increase. The central bank has not published such an estimate before, and did not comment any further on the implications of the figure.
The result is actually not controversial. The World Bank's estimates, which are done differently, also show that China now has a positive output gap - all part of the case for the government to do more to cool down the economy.