China's Economy; is a candle burning at both ends

ShutterBug SG

China's economy
Too much, too fast?
August 11, 2006

THE Chinese economy has been expanding at its fastest pace in a decade.

Yet, government officials and economic experts warned that measures would be needed to rein in growth that had galloped along at an 11.3 per cent pace in the second quarter.

For many Chinese, the sizzling economy is an opportunity, not a problem, the International Herald Tribune (IHT) reported.

Beijing engineer Wang Lijun, who owns a business supplying engineers to the petroleum industry said: 'So far it is good for me. There are lots of projects going on. If I had more money, I could grow faster.'

And for many Chinese like Ms Wang, times have never been better.

But the authorities in Beijing and experts in financial capitals say there are signals that China's economy is in danger of racing out of control.

They are concerned about the accelerating investment in apartment buildings, shopping malls, roads, steel mills, factories, mines, ports and theme parks, reported the IHT.

Mr Jim Walker, chief economist with a Hong Kong research firm CLSA Asia Pacific Markets said: 'When you have a period of rampant economic growth, as China has, there tends to be a pretty sharp correction at the end of that.

'China could see an extremely sharp slowdown.'

And with the huge amount of foreign investment in China, that slowdown would be felt around the world.

The consensus among economists is that growth will hit a bump, but not that dramatically.

Some, however, disagree.

Several experts say it is difficult to anticipate what might happen, since no one has seen anything quite like the Chinese economy.

The Chinese government recently took steps to slow the economy, including increased reserve requirements for commercial banks aimed at reducing the funds available for lending.

It also imposed restrictions on foreign investment in property to curb speculation, and reduced incentives for exporters in a bid to narrow the trade surplus.

And with China's President Hu Jintao and Prime Minister Wen Jiabao calling for a brake on growth, most experts expect further tightening.

But it is uncertain if the spending spree of local governments, who control much of the country's economic activity, will follow the national effort in trying to rein in the economy.

Most analysts expect further rate increases, but there are doubts if they will slow an economy flushed with money.

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Probe on officials who approve new projects

In a bid to curb overheated investment, the State Council has given local governments one month to report new industrial projects that have been approved against national rules, reported the China Daily.

The National Development and Reform Commission unveiled the central government circular last Friday, which ordered local authorities to self-examine projects launched between January and June. Local authorities have until end August to report their final results.

The ultimatum aims to halt some projects that fail to meet industry policies, land and credit approval procedures and environmental regulations, said a senior official with the commission.