Gross domestic product expanded 10.5 percent in 2006 from a year earlier, National Development and Reform Commission head Ma Kai said Friday in a statement on the organization’s Web site. That is down from 10.7 percent over the first three quarters.

Stopping the world’s fourth-biggest economy from overheating may hinge on Premier Wen Jiabao’s government finding ways to soak up cash pouring into the economy from a record trade surplus. China has raised interest rates and bank reserve requirements to avoid rising bad loans, accelerating inflation and idle factories. “The trade surplus is still quite a monster, flooding cash into the financial system,” said Wang Qian, an economist at JPMorgan Chase & Co. in Hong Kong. “China’s main challenge this year is to absorb the money.”

Gross domestic product topped 20 trillion yuan (US$2.6 trillion) last year, Ma said. He cited initial estimates, with the figures due to be released by the statistics bureau in Beijing on Jan. 25. Friday’s statement didn’t give a separate figure for the fourth quarter.

The full-year increase is in line with the median forecast of 18 analysts surveyed by Bloomberg.

The slowdown in investment and loans is “not stable,” according to Ma. “The pace of economic growth is still fast,” the planner said, adding China’s government will continue to strengthen and improve macro-economic controls.

The central bank on Jan. 5 ordered commercial banks to set aside more money as reserves for the fourth time in seven months. The People’s Bank of China said it was countering “rising pressure” from the trade surplus for loans to increase.

The central bank raised interest rates twice last year and is also selling treasury bills to soak up money and curb investment.

China’s trade gap swelled 74 percent to a record of US$177.5 billion in 2006, the government said this week. Lawmakers in the U.S. accuse the country of keeping its currency, the yuan, artificially weak to help exporters. The imbalance in international payments is worsening, Ma said Friday.

Inflation in 2006 was “relatively low,” Ma said, without being more specific. Consumer prices rose 1.9 percent in November, the 20th month of increases of less than 2 percent, the statistics bureau said previously.

In 2007, “the risk will be from a rebound in investment,” said Ma Jun, an economist at Deutsche Bank AG in Hong Kong, after the statement by the planning agency.

While growth slowed in the fourth quarter, an economic expansion of more than 10 percent “is still not acceptable for the government,” said Paul Tang, an economist at Bank of East Asia Ltd. in Hong Kong. “Exports and investment are still growing quite fast. On the other hand, if consumption picks up, that would be ideal.”

China surpassed the U.K. as the world’s fourth-largest economy in 2005, when the Asian nation’s economy expanded by 10.2 percent. During 2006, growth reached a decade high of 11.3 percent in the second quarter, before slowing to 10.4 percent in the third quarters.

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