China is scheduled to release statistics on fourth quarter 2009 GDP growth tomorrow, January 21. And the consensus among forecasters surveyed by Bloomberg is that China’s GDP grew by 10.5% from the fourth quarter of 2008.

10.5% could just be too much of a good thing.

10.5% growth would put the government in a tough spot. On the one hand, Beijing wants to support growth in domestic demand as a counterbalance to the country’s export sector. That rebalancing would be hard to pull off if growth slows. On the other hand, the government wants to avoid further inflating a bubble in real estate, stocks and industrial assets.

It’s a problem that most of the world would love to have. But it is a problem none the less.

Back in November the country’s monetary policy committee said a 10% or higher rate of annual growth would be excessive. That implied that growth at that pace would lead the country’s central bank, The People’s Bank of China, to begin tightening the money supply.

More recently Premier Wen Jiabao has said that the government will focus on month-to-month data in setting monetary and economic policy. Wen seemed to imply that calculating an annual growth rate overstates the current speed of economic growth since it compares current economic activity with the economic trough in the fourth quarter of 2008 and the first quarter of 2009.

So how will market’s move on the number?

How Chinese—and other developing market stocks—react to tomorrow’s news quite probably depends on how the government frames the data. If it emphasizes an annual perspective and the degree to which the current quarter exceeds the annual 10% “speed limit,” investors are likely to see it as a sign that the government favors monetary tightening sooner rather than later. If it emphasizes the need to use month to month data and thus downplays any growth above 10%, investors are likely to see it as a sign that tightening will occur later rather than sooner. 

No doubt, though, that the number has the power to move global financial markets.