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Strategies & Market Trends : China Warehouse- More Than Crockery -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (1033)	10/20/2003 11:07:56 AM
From: RealMuLan	Read Replies (1) \| Respond to of 6370

China's surging economy fuels worries of overheating, possible collapse SHANGHAI : China's rampant economic growth is fuelling concerns that the world's most rapidly expanding economy may be at risk of overheating and heading towards a potential financial crisis. Analysts responded with caution to China's strong quarterly economic growth figures released Friday, which showed the country dusting off last quarter's SARS-influenced slowdown and rising 2.4 percentage points to 9.1 percent in the third quarter year-on-year. Advertisement "I wouldn't call it overheating for the whole economy. GDP (gross domestic product) is a bit high," said Huang Yiping, an economist at Citigroup. "But is there risk of overheating? Yes." Worries about the world's sixth largest economy's growth rates largely centre around the huge jump in fixed-asset investment in the first nine months of the year, up 30.5 percent compared with an increase of 16.1 percent last year, while GDP grew around eight percent. Industrial output, which correlates with the amount of investment being pumped into the system, is running at more than 16 percent over the first three quarters compared to last year, a rate that analysts say is too high. "This is much too high, the trend has been around 10 to 12 percent." said Eddie Wong, an economist at ABN Amro. Chinese officials have long primed the economic pumps to stimulate domestic demand, and in 1998 ratcheted up deficit spending to defend itself against the fallout from the Asian financial crisis. While government spending helps to create jobs and boost incomes, if overdone it risks a deflationary disaster. "The structural problem in the economy is over-investment, and under consumption, which is why you have to rely on investment to keep the economy growing, because there is always going to be excess supply," Huang said. Yet Chinese economists argue that the economy is not in any immediate danger because demand remains relatively strong and the high level of investment is a reaction to the country's rapid industrialization and urbanization. The consumer price index, which covers a range of goods, rose 0.7 percent in the first nine months, largely buoyed by an increase in food prices of 2.2 percent, while retail sales prices dropped 0.5 percent from a year earlier. "You can't say China's economy is overheated at the moment as there is no obvious inflation and the yuan is stable. Prices are not increasing and the consumption demands are not that big," Li Peiling, an economist from the China Academy of Social Sciences, said. Still, experts fret about excessive investment in several sectors of the Chinese economy because ramped-up production prompts oversupply, in turn driving prices lower. Economists say that a major surge in investment, bank lending, construction and car manufacturing has put the Chinese economy at risk. This means that as consumer buying drops on expectations that prices will continue to fall, factories are forced to ratchet up output to combat decreasing revenues as sales slide. The vicious cycle leads to default on bank loans and eventual economic collapse. "Investment growth has reached a danger point. If something isn't done to adjust this in a timely way, it will have serious consequences, most obviously for the banks who are financing most of the investment," said Qu Hongbin, an economist with HSBC in Hong Kong. - AFP channelnewsasia.com