News / Asia

Chinese Economy Accelerates, but Risks Mount

More worrisome say economists, is that property prices are rising rapidly - like a bubble.

Chinese officials say the country's massive stimulus package last year worked - the economy grew nearly nine percent last year. But it may have worked too well. China has to deal with a host of emerging risks.
China's gross domestic product grew a blistering 10.7 percent in the last three months of 2009 - its fastest quarterly growth in two years.

Growth like that is not unheard of in China but when taking into account the recent global slowdown, it shows an economy on the fast track to recovery.

Much of that growth was thanks to a $600 billion stimulus package last year. Under that package, Chinese banks lent a record $1.4 trillion, most of the new loans going into infrastructure development and real estate.

But economists say such rapid loan growth brings mounting risks.

For one, consumer prices are rising. Inflation rose 1.9 percent in December, up from 0.6 percent in November. And inflation is politically sensitive in a country where hundreds of millions of people still live in extreme poverty.

More worrisome say economists, is that property prices are rising rapidly - like a bubble. Home prices jumped nearly eight percent on average in December from the same month in 2008 - the fastest climb in 17 months. Sales soared almost 76 percent to a staggering $644 billion last year - roughly the size of the combined annual gross domestic product of Singapore, Thailand and Malaysia.

Nouriel Roubini, an economics professor at New York University who is known for having predicted the recent financial crisis, says the success of China's stimulus may backfire.

"There are already signs of overheating of some parts of the economy," said Roubini. "That's why China surprised the market and started tightening its monetary and credit policy to avoid inflation from getting out of hand."

The central bank this month tightened credit by raising the minimum amount of reserves that banks must keep and asking banks to limit new loans to about $1 trillion this year. It also raised the interest rate on its three-month bills.

Banking authorities worry that new loans have gone mostly to big clients in the construction and energy sectors. That means banks could be saddled by huge bad debts if any of those clients fails.

Still, banks lent $88 billion in the first week of January.

Speaking at a conference in Hong Kong last week, Roubini said China's credit boom means too many factories, office buildings and houses are being built.

"Most of the growth rate in China in the last year has been driven by fixed investments, on one side infrastructure spending and essentially state-owned banks being told to provide credit to state-owned enterprises and telling state-owned enterprises to produce more, hire more and increase capacity at a time when there's already a massive glut of manufacturing capacity," he said. "So my fear is that the strategy of China can work for a year or two but it's going to lead to even more glut of capacity and that's going to lead eventually to situations of non-performing loans."

He says it will take a radical policy change to fix the situation - such as shifting China's growth model so it is driven less by exports and more by domestic consumption. Roubini says that is unlikely to happen fast enough.

Lee Jong-wah, chief economist of the Asian Development Bank, says China needs to find the right balance as it tries to encourage growth.

"Even though growth rate is maintained at the right level, and demand especially from consumers and investors increases over time, still [a] significant increase in domestic liquidity always poses a risk of an increase in price," he said. "This money is always chasing the highest return asset. It may go to real estate in major cities, it may go to some stocks, and will create problems - financial excesses and then the burst[ing] of the bubbles."

There are other concerns about China's growth. Economists are looking at exports: while shipments rose in December for the first time in 14 months, demand from major importers in the United States and Europe remains weak.

And then there is the issue of the China's currency, the yuan, which has been effectively pegged to the dollar since the middle of 2008, when demand for exports began to decline.

China's trade surplus dropped last year for the first time in six years. But the jump in exports in December could provide ammunition for the Group of Seven industrialized democracies to pressure China to let it appreciate. If the yuan rises, it would make Chinese exports more expensive.

While Chinese officials want to head off problems from excessive growth, they also want to avoid abrupt action that could slow the economy sharply.

Premier Wen Jiabao said in January that withdrawing the stimulus measures too soon could reverse growth, but he acknowledged that the government is watching for signs of inflation and asset bubbles and is trying to rein in the credit boom.
Liu Mingkang, chairman of the China Banking Regulatory Commission, echoed that thinking last week in Hong Kong.

"Looking ahead, our list of challenges is not short. In addition to credit risk, market risk and operational risk are real, too, and the mission to cultivate and guide the banks to support small businesses in China," said Liu.

Liu says that all these issues would mean it would be harder for the government to help the economy cool just enough to be healthy, and not enough to cause problems. He says that while last year was tough for China's economy, 2010 could be more complicated because of the uncertainties the country faces.

You May Like

Syrian Rebels Poised for Anti-Russia Collaboration

Forty-one insurgent groups issue joint statement vowing retaliation for Russian air offensives More

Political Maneuver Revives Export-Import Bank's Chances

Parliamentary tactic gets bill out of committee, but it faces opposition in the Senate More

Beijing Warns US on S. China Sea Patrols

Warning follows news reports Thursday that US military is planning to sail warships close to artificial islands Beijing has been aggressively building More

This forum has been closed.
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
House Republicans in Chaos as Speaker Favorite Withdrawsi
Jim Malone
October 09, 2015 12:32 AM
The Republican widely expected to become the next speaker of the House of Representatives shocked his colleagues Thursday by announcing he was withdrawing his candidacy. The decision by Majority Leader Kevin McCarthy means the race to succeed retiring Speaker John Boehner is now wide open. VOA National Correspondent Jim Malone reports.

Video House Republicans in Chaos as Speaker Favorite Withdraws

The Republican widely expected to become the next speaker of the House of Representatives shocked his colleagues Thursday by announcing he was withdrawing his candidacy. The decision by Majority Leader Kevin McCarthy means the race to succeed retiring Speaker John Boehner is now wide open. VOA National Correspondent Jim Malone reports.

Video German, US Officials Investigate Volkswagen

German officials have taken steps to restore some of the reputation their car industry has lost after a recent Volkswagen diesel emissions scandal. Authorities have searched Volkswagen headquarters and other locations in an effort to identify the culprits in the creation of software that helps cheat on emission tests. Meanwhile, a group of lawmakers in Washington held a hearing to get to the bottom of the cheating strategy that was first discovered in the United States. Zlatica Hoke reports.

Video Why Are Gun Laws So Hard for Congress to Tackle?

Since taking office, President Barack Obama has spoken out or issued statements about 15 mass shootings. The most recent shooting, in which 10 people were killed at a community college, sparked outrage over the nation's gun laws. But changing those laws isn't as easy as many think. VOA's Carolyn Presutti reports.

Video Hungary Criticized for Handling of Refugees

Amnesty International has accused Hungary of breaking multiple international and European human rights laws in its handling of the refugee crisis. As Henry Ridgwell reports, thousands of migrants and refugees continue to travel through the Balkans to Hungary every day.

Video Iraqi-Kurdish Teachers Vow to Continue Protest

Sixteen people were injured when police used tear gas and rubber bullets to disperse teachers and other public employees who took to the streets in Iraq’s Kurdish north, demanding their salaries from the Kurdish Regional Government (KRG). VOA’s Dilshad Anwar, in Sulaimaniya, caught up with protesting teachers who say they have not been paid for three months. Parke Brewer narrates his report.

Video Syrian Village Community Faces Double Displacement in Lebanon

Driven by war from their village in southwestern Syria, a group of families found shelter in Lebanon, resettling en masse in a half-built university to form one of the biggest settlements of its kind in Lebanon. Three years later, however, they now face being kicked out and dispersed in a country where finding shelter as a refugee can be especially tough. John Owens has more for VOA from the city of Saida, also known as Sidon.

Video Bat Colony: Unusual Tourist Attraction in Texas

The action hero Batman might be everyone’s favorite but real bats hardly get that kind of adoration. Put more than a million of these creatures of the night together and it only evokes images of horror. Sarah Zaman visited the largest urban bat colony in North America to see just how well bat and human get along with each other.

Video Device Shows Promise of Stopping Motion Sickness

It’s a sickening feeling — the dizziness, nausea and vomiting that comes with motion sickness. But a device now being developed could stop motion sickness by suppressing certain signals in the brain. VOA’s Deborah Block reports.

Video Making a Mint

While apples, corn, and cranberries top the list of fall produce in the US, it’s also the time to harvest gum, candy, and toothpaste—or at least the oil that makes them minty fresh. Erika Celeste reports from South Bend, Indiana on the mint harvest.

Video Activists Decry Lagos Slum Demolition

Acting on a court order, authorities in Nigeria demolished a slum last month in the commercial capital, Lagos. But human rights activists say the order was illegal, and the community was razed to make way for a government housing project. Chris Stein has more from Lagos.

Video TPP Agreed, But Faces Stiff Opposition

President Barack Obama promoted the Trans-Pacific Partnership on Tuesday, one day after 12 Pacific Rim nations reached the free trade deal in Atlanta. The controversial pact that would involve about 40 percent of global trade still needs approval by lawmakers in respective countries. Zlatica Hoke reports Obama is facing strong opposition to the deal, including from members of his own party.

Video Ukranian Artist Portrays Putin in an Unusual Way

As Russian President Vladimir Putin was addressing the United Nations in New York last month, he was also being featured in an art exhibition in Washington. It’s not a flattering exhibit. It’s done by a Ukrainian artist in a unique medium. And its creator says it’s not only a work of art - it’s a political statement. VOA’s Tetiana Kharchenko has more.

VOA Blogs