As 2009 draws to a close, more signs show that China has weathered the global financial crisis and is on its way to even more robust growth. Economists, however, say some issues still weigh on the country's efforts to sustain growth.
New economic data show that China's gross domestic product is expected to grow by more than eight percent this year. Industrial output for November grew just over 19 percent compared with a year ago, just after the financial crisis began. Imports soared nearly 27 percent, fueled by government spending on commodities.
But while exports show signs of recovery, they remain weak. In November, they were down about one percent from a year ago.
Michael Pettis, an associate for the Carnegie Endowment for International Peace and a finance professor at Peking University, says that the figures fuel debate over the country's economic strength.
"If you're an optimist it suggests that recovery is continuing," Pettis said. "Most of the numbers look reasonably good. There were still some excessively high levels of investment especially fixed asset investments. But production numbers were good etc. If you're a pessimist you would say yeah, this is exactly what you would expect from a massive-over investment strategy."
Some business experts worry that exports will become a smaller part of the economy. Factories face rising labor and overhead costs, and there are expectations the currency, the yuan will appreciate, so business leaders say keeping the sector afloat remains a challenge for the government.
Stanley Lau, deputy chairman of the Federation of Hong Kong Industries, which represents Hong Kong businesses in China, says factories face weak foreign demand.
"First of all, generally still, many importers do not know what will be the outcome for Christmas sales," Lau noted. "Which means many customers are still waiting for final figures to come out for Christmas sales. That's why they don't give us an order for next year yet. I think they need to wait and see until the New Year holidays and they will plan for order for next year."
As export demand started to fall last year, China's government began efforts to stimulate the economy - cutting interest rates, encouraging lending and spending hundreds of billions of dollars on infrastructure projects.
But some economists warn those efforts may be causing prices for real estate, stocks and other assets to rise too fast - like a bubble that could burst. They say that China's loose credit, over-investment and under-consumption has led to a potential hazard, particularly in the property market.
However, the government has begun trying to slow things down. Figures from the Banking Regulatory Commission show that in 2009 new lending will hit about $1.3 trillion, but next year it will fall to about $1.1 trillion. That is still double 2008 lending.
The government also is trying to cool the overheated property market, with a new sales tax on properties sold within five years of purchase. And there are plans to increase the supply of middle to low-priced housing to curb property speculation.
Andy Xie, an independent economist in Shanghai, warns China's property market could suffer once the U.S. Federal Reserve Bank raises interest rates, which would affect lending around the world.
"When inflation happens the Fed will have to raise interest rates substantially, which will lead to a global asset bubble popping and there will be another global crisis. And this global crisis may rival the one we just saw," he said.
Economists such as Xie and Pettis warn that governments must move carefully as they wind down stimulus packages. Raising interest rates and cutting spending too soon could easily shock economies and cause asset prices to collapse.