Chinese Economy on Course to Outstrip Uk

China, the world's fastest growing economy, is on course to overtake Britain in two years or so, according to figures released yesterday that show national output is moving forward so fast that the country is in danger of overheating.

With fears of Sars receding, the economy surged 9.1% in the July-September period as domestic firms ramped up investment and foreign manufacturers such as Ford and Sony once again poured money into a country that has become the workshop of the world.

According to government officials, the amount of economic activity in China soared to RMB7.9 trillion (£570bn) in the first nine months of the year, putting China on course to achieve a growth rate of 8.5% for 2003 - the fastest in more than five years.

If the country can maintain this pace it will overtake Britain and France to become the world's fourth biggest economy well before the end of 2005.

Business leaders are already hailing China as the powerhouse for growth in Asia - a role once held by Japan. With neighbouring nations increasing sales of raw materials to factories in China, imports jumped by 40.5% in the first nine months of the year.

Many of those factories are foreign-owned - as multinational firms rush to exploit China's abundant cheap labour. The latest is Ford, which announced plans yesterday for a new $1.5bn (£900m) plant in Chongching.

"China is really the engine that drives the entire region," Ford's chief executive officer, William Clay Ford, told reporters. "We do expect to expand aggressively in China."

Japanese manufacturers are also pumping cash into their neighbour's economy. Sony, the world's second-biggest consumer electronics maker, revealed yesterday it has invested $8bn in China and forecast that the country would become its second biggest market - behind only the US - within five years.

Although tens of millions of rural Chinese people scratch out a living well below the poverty line, the average disposable income in towns and cities - home to two-fifths of China's 1.3bn people - rose 9% to RMB6,347 (£460) in the first nine months of this year, the statistics bureau said.

The government boasted that its measures had created 6.25m jobs in the first nine months of the year, leaving an urban unemployment rate of 4.2%. Much of the new work was created through construction projects in cities including Shanghai, as well as huge public infrastructure under takings such as the Three Gorges dam - the world's biggest engineering project.

But the risks for the Chinese economy are growing along with its size. A flood of spending on property and construction has raised fears of overheating and highlighted the problems of overlending by Chinese banks. With credit easy to acquire, fixed-asset investment rose 30.5% in the first nine months of this year.

Such is the risk of overheating that economists now believe the government is downplaying the pace of growth. GDP figures have long been criticised as unreliable - though usually for being exaggerated rather than too modest.

The political dangers are also rising. With a US presidential election due next year, the Bush administration has criticised China's trade policies - which American politicians blame for the loss of millions of US jobs.