China's better-than-expected economic performance in the first quarter may ease the need for looser monetary policy but a strong rebound in exports and domestic demand is needed for a solid recovery, analysts said.

China's gross domestic product rose 6.1 percent from a year earlier to 6.57 trillion yuan (US$939 billion), the weakest growth since 1992, when quarterly figures were first released.

However, economists said GDP and other recently released economic data raise hopes that China's slowdown may be bottoming out.

"Despite the new low in year-on-year GDP growth, data at the end of the first quarter showed renewed strength in production, investment and demand as stimulus efforts kick into higher gear," said Ken Peng, a Citibank economist in Shanghai.

Industrial production in March rebounded to 8.3 percent on a year-on-year basis from 3.8 percent for the first two months, while fixed-asset investment surged 30.3 percent last month and 28.8 percent for the quarter.

Foreign direct investment in March dropped 9.5 percent to US$8.4 billion on a year-on-year basis, compared with a 15.8 percent decline in February and a 32.6 percent tumble in January.

Major lending

"China's economic stimulus package is already paying off with positive changes evident in the economy," Premier Wen Jiabao said on April 18 at the Boao Forum for Asia annual conference.

China has announced a 4-trillion-yuan stimulus package, along with higher rebates on export taxes, a boost in credit and more subsidies for rural economic development.

The central bank, the People's Bank of China, eased monetary policy in November to counter the effects of the global financial crisis.

Since September, the bank has cut interest rates five times and relaxed its reserves requirement four times.

The economy grew 9 percent last year though it tailed off to an annualized 6.8 percent in the final quarter.

Economists said quarter-on-quarter growth in the first three months of this year may have accelerated on a seasonally adjusted basis.

"The March quarter results were reassuring to policy makers so the need for further monetary loosening has eased," said Sherman Chan, a Moody's Economy.com economist.

Chinese banks have heeded government calls to help finance earmarked state projects. They extended 1.89 trillion yuan in local-currency loans in March, bringing the first-quarter total to 4.58 trillion yuan, close to the government's full-year target of at least 5 trillion yuan.

That helped lift annual growth in the broad M2 measure of money supply to a record 25.5 percent in March on a year-on-year basis, up from 20.5 percent in February and easily exceeding economists' expectations of a 21.3 percent rise.

"Credit growth has been strong, and there is little need for the authorities to make the lending environment even more encouraging," said Chan. "Controlling loan defaulting and monitoring a potential return of inflationary pressure may be the new focus of China's financial regulators and central bank from now on."

Economists are concerned the huge supply of credit in the first quarter may translate into a surge of bad loans and they expect authorities to be more prudent on expanding credit.