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

Beloved Lion Killing Sparks Virtual, Real Life Outrage

Twitter, as usual, was epicenter for anger directed at Palmer, with some questioning his manhood, calling for him to be released into the wild More

Video Booming London Property Market a Haven for Dirty Money

Billions of dollars from proceeds of crime, especially from Russia, being laundered through London property market, according to anti-corruption activists More

Video Scouts' Decision on Gays Meets Acceptance in Founder's Hometown

One former Scout leader thinks organization will move past political, social debate, get back to its primary focus of turning boys into good citizens 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.
Booming London Property a ‘Haven for Dirty Money’i
X
July 29, 2015 9:34 PM
Billions of dollars of so-called ‘dirty money’ from the proceeds of crime - especially from Russia - are being laundered through the London property market, according to anti-corruption activists. As Henry Ridgwell reports from the British capital, the government has pledged to crack down on the practice.
Video

Video Booming London Property a ‘Haven for Dirty Money’

Billions of dollars of so-called ‘dirty money’ from the proceeds of crime - especially from Russia - are being laundered through the London property market, according to anti-corruption activists. As Henry Ridgwell reports from the British capital, the government has pledged to crack down on the practice.
Video

Video Hometown of Boy Scouts of America Founder reacts to Gay Leader Decision

Ottawa, Illinois, is the hometown of W.D. Boyce, who founded the Boy Scouts of America in 1910. In Ottawa, where Scouting remains an important part of the legacy of the community, the end of the organization's ban on openly gay adult leaders was seen as inevitable. VOA's Kane Farabaugh reports.
Video

Video 'Metal Muscles' Flex a New Bionic Hand

Artificial limbs, including the most complex of them – the human hand – are getting more life-like and useful due to constant advances in tiny hydraulic, pneumatic and electric motors called actuators. But now, as VOA’s George Putic reports, scientists in Germany say the future of the prosthetic hand may lie not in motors but in wires that can ‘remember’ their shape.
Video

Video Russia Accused of Abusing Interpol to Pursue Opponents

A British pro-democracy group has accused Russia of abusing the global law enforcement agency Interpol by requesting the arrest and extradition of political opponents. A new report by the group notes such requests can mean the accused are unable to travel and are often unable to open bank accounts. VOA's Henry Ridgwell reports.
Video

Video 'Positive Atmosphere' Points Toward TPP Trade Deal in Hawaii

Talks on a major new trade agreement among 12 Pacific Rim nations are said to be nearing completion in Hawaii. Some trade experts say the "positive atmosphere" at the discussions could mean a deal is within reach, but there is still hard bargaining to be done over many issues and products, including U.S. drugs and Japanese rice. VOA's Jim Randle reports.
Video

Video Genome Initiative Urgently Moves to Freeze DNA Before Species Go Extinct

Earth is in the midst of its sixth mass extinction. The last such event was caused by an asteroid 66 million years ago. It killed off the dinosaurs and practically everything else. So scientists are in a race against time to classify the estimated 11 million species alive today. So far only 2 million are described by science, and researchers are worried many will disappear before they even have a name. VOA’s Rosanne Skirble reports.
Video

Video Scientists: One-Dose Malaria Cure is Possible

Scientists have long been trying to develop an effective protection and cure for malaria - one of the deadliest diseases that affects people in tropical areas, especially children. As the World Health Organization announces plans to begin clinical trials of a promising new vaccine, scientists in South Africa report that they too are at an important threshold. George Putic reports, they are testing a compound that could be a single-dose cure for malaria.
Video

Video 'New York' Magazine Features 35 Cosby Accusers

The latest issue of 'New York' magazine features 35 women who say they were drugged and raped by film and television celebrity Bill Cosby. The women are aged from 44 to 80 and come from different walks of life and races. The magazine interviewed each of them separately, but Zlatica Hoke reports their stories are similar.
Video

Video US Calls Fight Against Human Trafficking a Must Win

The United States is promising not to give up its fight against what Secretary of State John Kerry calls the “scourge” of modern slavery. Officials released the country’s annual human trafficking report Monday – a report that’s being met with some criticism. VOA’s National Security correspondent Jeff Seldin has more from the State Department.
Video

Video Washington DC Underground Streetcar Station to Become Arts Venue

Abandoned more than 50 years ago, the underground streetcar station in Washington D.C.’s historic DuPont Circle district is about to be reborn. The plan calls for turning the spacious underground platforms - once meant to be a transportation hub, - into a unique space for art exhibitions, presentations, concerts and even a film set. Roman Mamonov has more from beneath the streets of the U.S. capital. Joy Wagner narrates his report.
Video

Video Europe’s Twin Crises Collide in Greece as Migrant Numbers Soar

Greece has replaced Italy as the main gateway for migrants into Europe, with more than 100,000 arrivals in the first six months of 2015. Many want to move further into Europe and escape Greece’s economic crisis, but they face widespread dangers on the journey overland through the Balkans. VOA's Henry Ridgwell reports.
Video

Video Stink Intensifies as Lebanon’s Trash Crisis Continues

After the closure of a major rubbish dump a week ago, the streets of Beirut are filling up with trash. Having failed to draw up a plan B, politicians are struggling to deal with the problem. John Owens has more for VOA from Beirut.
Video

Video Paris Rolls Out Blueprint to Fight Climate Change

A U.N. climate conference in December aims to produce an ambitious agreement to fight heat-trapping greenhouse gases. But many local governments are not waiting, and have drafted their own climate action plans. That’s the case with Paris — which is getting special attention, since it’s hosting the climate summit. Lisa Bryant takes a look for VOA at the transformation of the French capital into an eco-city.
Video

Video Racially Diverse Spider-Man Takes Center Stage

Whether it’s in a comic book or on the big screen, fans have always known the man behind the Spider-Man mask as Peter Parker. But that is changing, at least in the comic book world. Marvel Comics announced that a character called Miles Morales will replace Peter Parker as Spider-Man in a new comic book series. He is half Latino, half African American, and he is quite popular among comic book fans. Correspondent Elizabeth Lee reports from Los Angeles.
Video

Video Historic Symbol Is Theme of Vibrant New Show

A new exhibit in Washington is paying tribute to the American flag with a wide and eclectic selection of artwork that uses the historic symbol as its central theme. VOA’s Julie Taboh was at the DC Chamber of Commerce for the show’s opening.

VOA Blogs