Chinese Economy Overheating
In an attempt to maintain growth at a more manageable
rate, the Chinese government's statistics may be deliberately
understating China's current growth rate. While the government
is stating that China's economy is growing at slightly
more than 8 percent, the reality is that it may be growing
at more than 11 percent annually, with 14.2 percent growth
in the third quarter.
China's growth this year has been driven by surges in
the automotive sector, investment, bank lending and construction.
These areas have grown by more than 30 percent already
this year. In addition, it is estimated that more than
US$60 billion in "hot money" has worked its
way to China in expectations that the Chinese yuan will
be revalued upwards.
Growth is slower in the rural areas of China, where it
is estimated around 10 percent annually. Figures for rural
growth are often unreliable as the data is collected and
reported by provincial governments which massage the figures
when reporting to the central government.
At the time of the SARS outbreak in April and May, China
Business Strategy reported that aside from the
human tragedy, it would provide a welcome slowdown
for the economy. However, the SARS crisis has unexpectedly
driven rapid growth in auto sales, which have not slowed
down yet. This in turn has spurred investment in auto
production.
The main challenge for China's financial system is if
it can channel all the money into the right investments.
China's banks have more than US$500 billion in bad loans,
and while the central government has asked them to get
those loans off their books, they have acted slower than
they would like.
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