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

Obama: Alaskans Feel Signs of Climate Change

They're seeing bigger storm surges as sea ice melts, more wildfires, erosion of glaciers, shorelines More

1855 Slave Brochure Starkly Details Sale of Black Americans

Document lists entire families that were up for sale in New Orleans, offering graphic insight into the slavery trade More

Katrina Brought Enduring Changes to New Orleans

The city’s recovery is the result of the people and culture the city is famous for, as well as newcomers and start-up industries More

This forum has been closed.
Comments
     
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.
Colombians Flee Venezuela as Border Crisis Escalatesi
X
August 27, 2015 2:08 AM
Hundreds of Colombians have fled Venezuela since last week, amid an escalating border crisis between the two countries. Last week, Venezuelan President Nicolas Maduro ordered the closure of a key border crossing after smugglers injured three Venezuelan soldiers and a civilian. The president also ordered the deportation of Colombians who are in Venezuela illegally. Zlatica Hoke reports.
Video

Video Colombians Flee Venezuela as Border Crisis Escalates

Hundreds of Colombians have fled Venezuela since last week, amid an escalating border crisis between the two countries. Last week, Venezuelan President Nicolas Maduro ordered the closure of a key border crossing after smugglers injured three Venezuelan soldiers and a civilian. The president also ordered the deportation of Colombians who are in Venezuela illegally. Zlatica Hoke reports.
Video

Video Is China's Economic Data Accurate?

Some investors say China's wild stock market gyrations have been made worse by worries about the reliability of that nation's economic data. And some critics say the reports can mislead investors by painting an unrealistically-strong picture of the economy. A key China scholar says Beijing is not fudging ((manipulating)) the numbers, but that the economy is evolving quickly from smoke-stack industries to services, and the ways of tracking new economic activity are falling behind the change. V
Video

Video Next to Iran, Climate at Forefront of Obama Agenda

President Barack Obama this week announced new initiatives aimed at making it easier for Americans to access renewable energy sources such as solar and wind. Obama is not slowing down when it comes to pushing through climate change measures, an issue he says is the greatest threat to the country’s national security. VOA correspondent Aru Pande has more from the White House.
Video

Video Shipping Containers Provide Experimental Housing

Housing prices around the San Francisco Bay area are out of reach for many people, so some young entrepreneurs, artists and tech industry workers are creating their own houses using converted shipping containers. But as VOA's Mike O’Sullivan reports from Oakland, the effort requires ingenuity and dealing with restrictive local laws.
Video

Video Arctic Draws International Competition for Oil

A new geopolitical “Great Game” is underway in earth’s northernmost region, the Arctic, where Russia has claimed a large area for resource development and President Barack Obama recently approved Shell Oil Company’s test-drilling project in an area under U.S. control. Greg Flakus reports.
Video

Video Philippine Maritime Police: Chinese Fishermen a Threat to Country’s Security

China and the Philippines both claim maritime rights in the South China Sea.  That includes the right to fish in those waters. Jason Strother reports on how the Philippines is catching Chinese nationals it says are illegal poachers. He has the story from Palawan province.
Video

Video Technique May Eliminate Drill-and-Fill Dental Care

Many people dread visiting dentists because they're afraid of drills. Now, however, a technology developed by a British firm promises to eliminate the need for mechanical cleaning of dental cavities by speeding a natural process of tooth repair. VOA’s George Putic reports.
Video

Video China's Spratly Island Building Said to Light Up the Night 'Like A City'

Southeast Asian countries claim China has illegally seized territory in the Spratly islands. It is especially a concern for a Philippine mayor who says Beijing is occupying parts of his municipality. Jason Strother reports from the capital of Palawan province, Puerto Princesa.
Video

Video Ages-old Ice Reveals Secrets of Climate Change

Ice caps don't just exist at the world's poles. There are also tropical ice caps, and the largest sits atop the Peruvian Andes - but it is melting, quickly, and may be gone within the next 20 years. George Putic reports scientists are now rushing to take samples to get at the valuable information about climate change locked in the ice.
Video

Video French Experiment in Integrating Roma Under Threat

Plans to destroy France’s oldest slum have sparked an outcry on the part of its Roma residents. As Lisa Bryant reports from the Paris suburb of La Courneuve, rights groups argue the community is a fledgling experiment on integrating Roma who are often outcasts in many parts of Europe.
Video

Video Kenyans Turn to Agriculture for Business

Each year Kenyan universities continue to churn out graduates for the job market despite the already existing high rate of unemployment among youth in the country. Some of these young men and women have realized that agriculture can be as rewarding as any other business or job, and they are resorting to agribusiness in large numbers as a way of tackling unemployment. Rael Ombuor reports for VOA.
Video

Video First Women Graduate Elite Army Ranger School

Two women are making history for the U.S. Army by proving they are among the toughest of the tough. VOA's Carla Babb reports from Fort Benning, Georgia as 94 men and those two women rise as graduates of the difficult Ranger school.

VOA Blogs