Financial World: China’s Economy

China’s Economy

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China’s economy showed fresh signs on Friday that its recovery was gathering pace, with data showing that investment, industrial output and credit all expanded more rapidly in August, although the government still believes it is too soon to begin tightening policy.
Increases in output and investment both beat analysts’ forecasts and followed a series of figures in July that suggested the recovery might be weakening. The one exception was on the trade front, where the decline in exports and imports compared with the year before was sharper than expected.
“The further signs of strengthening private investment and consumer spending reinforce our view of a growth recovery that is to be sustained,” said Peng Wensheng, economist at Barclays Capital.
The robust August numbers will intensify the debate about when Beijing should begin withdrawing some of the huge fiscal and monetary stimulus measures it has put in place since the end of last year.
Speaking at the meeting of the World Economic Forum in Dalian this week, Wen Jiabao, the premier, ruled out any early change of course.
“China’s economic rebound is unstable, unbalanced and not yet solid,” Mr Wen said. “We can not and will not change the direction of our policies when the conditions aren’t appropriate.”
Asia economic weather map

One year after the global financial crisis began, confidence is soaring among Asian economists and policymakers
However, the dramatic increases in new lending and money supply this year, combined with rising property and equity markets, have raised fears that government policies are creating a series of bubbles and aggravating over-capacity in the economy. Even senior officials acknowledge this as a genuine risk.
“We are all concerned about the issue of excess capacity in some industries, which has become quite prominent,” said Zhang Xiaoqiang, vice-chairman of the National Development and Reform Commission, China’s powerful central planning agency.
Stephen Roach, Asia chairman for Morgan Stanley, said the figures showed the recovery was intact but heavily dependent on investment.
“This trend is not sustainable and, although the Chinese economy will probably expand in the third and fourth quarters this year, the real test will be next year when it becomes clear that external demand, led by the US consumer, is in big trouble,” Mr Roach said.