Chinese economy risks overheating:study


Economic growth could balloon to 16 percent in 2010 if the government continues its vast stimulus measures in line with last year, leading to an overheating of the economy, two researchers warned Monday .

"The stimulus measures were based on the economy adversely affected by the global crisis a year ago," Yao Zhizhong, of the Chinese Academy of Social Sciences (CASS), told the Global Times. "The economy, which has recovered significantly now, will overheat if we continue the same monetary and fiscal policies."

China's GDP grew by 8.9 percent in the third quarter of 2009, accelerating from 7.9 percent in the second quarter and 6.1 percent in the first, fueled by growing domestic consumption, a 4 trillion yuan ($586 billion) stimulus package and more than 9 trillion yuan in bank loans since November 2008.

The economy should grow 11.6 percent in 2010, once moderate stimulus to sustain recovery is implemented, Yao and He Fan, also of the CASS, said in

their report published by the China Securities Journal Monday .

Moderate growth was interpreted as 20 percent in money supply and the same fiscal expenditure growth as 2009, estimated to be nearly 1.5 trillion yuan, in order to guarantee such economic growth, according to Yao.

Yearly GDP growth could swing from 7.7 percent to 16 percent, in the event of a complete withdrawal of stimulus measures and a full implementation of last year's measures, according to the scenario the researchers drew up in the report.

A complete withdrawal would mean both the growth rates of money supply and fiscal expenditure would be at 10 percent, Yao said.

But a macro-economic stimulus equal to that of 2009 would suggest a 30 percent growth rate in money supply, a major source of bank loans, and a 23 percent growth rate in fiscal expenditure, he said.

The estimation is based on a positive outlook in exports this year, which Yao said would contribute about 1.5 percent to GDP growth.

The forecast came as the People's Bank of China announced last week at an annual working conference that the appropriately loose monetary policy would continue in 2010, without setting any specific target for the growth of the money supply or bank loans.

In the meantime, the nation's finance minister said China would extend active fis-cal policies aimed at countering the global economic slowdown into 2010, and sent a warning that departing "too early" from those policies could damage the economy.

Minister Xie Xuren said at a policymaking meeting Sunday that active fiscal policies in 2010 would focus on expanding domestic consumer demand.

Bu Yongxiang, a central bank official, said last month that the growth rate of money supply in 2009 could reach 34 percent, far exceeding the 17 percent target rate. Wang Huaqing, an official at the China Banking Regulatory Commission, estimated that loans last year could reach 9.6 trillion yuan, a 30 percent increase over 2008.

Meanwhile, statistics from the Ministry of Finance show that the growth rate of fiscal expenditure in the first 11 months of 2009 was 22.7 percent.

The Economic Information Daily reported Monday that the country's new bank loans in the first week of this year amounted to 600 billion yuan ($87.9 billion), which has forced the Central Bank to consider stricter monetary policies.

China's exports grew 17.7 percent last month from a year earlier, the first increase in more than a year, and imports rose to a record, customs data showed Monday .

He Maochun, an economist at Tsinghua University, said the increased imports and exports are signs of economic recovery.

"It is not an exaggeration to say China is an engine of the world economy. As the uncertainty surrounding the Chinese economy reduces, more people prefer to bet on China's future," He said.

China replaced Germany to become the world's largest exporter in 2009, according to data from the Geneva-based Global Trade Information Services. In the first 10 months of last year, the value of goods exported by China was $957 billion, exceeding the $917 billion from Germany, according to the data.

Boosted by stimulus measures, China became the world's top automaker and market last year, overtaking the United States, official figures also revealed Monday .

The industry would continue to see rapid growth in the next decade, as it has become a pillar of the national economy, Dong Yang, CAAM deputy chairman, told Xinhua.

Liu Bin, a Dalian-based economist, said the record auto manufacturing and sales contributed to the world economic recovery and was a true reflection of the country's capability of countering the global financial downturn.

"China has huge potential. These potentials were unleashed full scale, expanding the domestic market," Liu said.