Beijing, January 25, 2007 - China says its economy grew by 2.7 percent in 2006, the fastest pace in 11 years. The record growth suggests Beijing's efforts to slow down the economy have not had much effect. Daniel Schearf reports from Beijing.

China's National Bureau of Statistics said Thursday that continued high levels of foreign investment and trade drove the record economic expansion.

China's total volume of trade last year increased by 23 percent, while exports were up 27 percent.

The head of the Bureau of Statistics, Xie Fuzhan, says that despite the speedy growth, China's economy managed to avoid overheating. He predicts the economy will continue expanding rapidly in 2007 but says it still faces many challenges.

"Agriculture still has a weak base, which leads to increased difficulties in the steady growth of grain production and farmers' incomes," he said. "The relation between investment and consumption is irrational. The imbalance of payments and liquidity in banking is still rather large. And, arduous tasks still remain in saving energy and reducing pollution."

China has been struggling to slow the growth for fear it will cause overcapacity and lead to inflation.

The central bank last year raised interest rates twice and several times ordered banks to increase reserves and tighten lending.

But last year's record growth indicates those efforts had little effect.

Xie says lending is now under control and China's investment structure has improved, with some sectors that had been experiencing overcapacity now at appropriate levels of expansion.

The growth of investment in fixed assets such as roads and factories slowed slightly in 2006, but still grew at a rapid 24 percent, while investment in real estate rose by nearly 22 percent.

China is striving to increase consumer spending so it can rely less on its industrial and export base to drive the economy.

To do that, Xie says China will first need to improve access to services such as education and social security to increase consumer confidence. Now most Chinese workers save a large portion of their income to pay for their children's education and to have a retirement safety net, as per voanews.com.

The government hopes that increased spending will help lower China's politically sensitive trade surplus, which it says increased by about 75 percent last year.

The United States and other countries want China to loosen the exchange rate on its currency, the yuan, which they say is driving up the surplus by making the country's exports cheaper overseas.

China is the world's fourth largest economy, worth about $2.7 trillion. If it continues to grow at about 10 percent a year, experts say it is likely to overtake Germany as the world's third largest economy within a few years.

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