China's economy grew 7.9% in the first nine months of 2002, thanks to strong international demand for its products and heavy government spending.

Figures from the National Bureau of Statistics (NBS) indicated that Asia's second largest economy would beat its 7% target for the whole year as exports surged 19.4% in the period.

The state policies of expanding domestic demand and market demand have become the two major driving forces of economic development

NBS

"The national economy has maintained fast and healthy growth and momentum and the overall situation is better than expected," the bureau said.

The data comes ahead of next month's Communist Party Congress, at which China's leadership, including President Jiang Zemin are expected to hand over power to a new generation.

Pump priming

Government spending helped push growth to 8.1% year-on-year in the July to September quarter alone.

"The state policies of expanding domestic demand and market demand have become the two major driving forces of economic development," an NBS spokesman said.

Infrastructure investment - on roads, property and power grids - rose 21.8% in the nine months to September from last year.

The government hopes the fiscal stimulus will create jobs and lay the building blocks for further economic growth.

The evolving private sector has been absorbing unemployed former public sector workers and China could attract $55bn in foreign direct investment this year, the NBS said.

Prices fall

Stalking the Chinese economy is deflation, with consumer prices falling 0.8% over the nine months, which can hurt company profits and lead to lower investment.

The lower prices helped retail sales up 8.7% in the period, but were not enough to help them reach the government target of 9%.

China's deflation has been blamed on industrial overcapacity and weak demand from consumers, who fearing unemployment, are saving their cash as the country goes through major economic changes.

Industrial production rose by 12.2%.