Tags: Economist | China | Growth | Stop

Economist: China's Booming Growth Won't Stop

Tuesday, 19 Jan 2010 10:18 AM

Contrary to popular opinion, some say China's growth is actually pretty sound and sustainable overall.

On the face of it, the similarities between China today and bubble-era Japan reportedly are worrying.

Extraordinarily high saving and an undervalued exchange rate have fueled rapid export-led growth and the world’s biggest current-account surplus, according to The Economist magazine.

However, a close inspection of pessimists’ three main concerns — overvalued asset prices, overinvestment and excessive bank lending — suggests that China’s economy is more robust than they think.

For one thing, Chinese share prices are nowhere near as giddy as Japan’s were in the late 1980s.

Moreover, China’s property boom is being financed mainly by saving, not bank lending.

According to Yan Wang, an economist at BCA Research, a Canadian firm, only about one-fifth of the cost of new construction (commercial and residential) is financed by bank lending.

And while Chinese investment is certainly high, it’s hard to argue that China has added too much to its capital stock when, per person, it has only about 5 percent of what America or Japan has.

Granted, recent lending in China has been excessive, and combined with overcapacity in some industries is likely to cause an increase in banks’ non-performing loans.

But the spurt in 2009, which was engineered by the government to revive the economy, followed several years in which credit grew more slowly than gross domestic product, or GDP.

Famed short-seller Jim Chanos has been making waves lately by saying he thinks China is in a bubble and ready to collapse in 2010, Forbes reports.

Chanos argues that easy credit has let real estate and stock market prices shoot upward.

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Contrary to popular opinion, some say China's growth is actually pretty sound and sustainable overall. On the face of it, the similarities between China today and bubble-era Japan reportedly are worrying. Extraordinarily high saving and an undervalued exchange rate have...
Economist,China,Growth,Stop
274
2010-18-19
Tuesday, 19 Jan 2010 10:18 AM
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