China�s economy is unlikely to sustain current breakneck levels of growth, given current economic structural problems which have led to bubbles in some sectors. Economists told RFA they especially expect to see a downturn in the country�s soaring real estate sector.

�There seems to be a wide consensus that there is excessive investment in real estate of all kinds,� Gary Hufbauer, senior fellow at the Institute for International Economics in Washington, said.

Hufbauer said China had seen a surge in speculative building of office buildings, warehouses, luxury apartments, and hotels. �In some places... there will be such a glut of this building that there will be a big crash in prices within a year or two,� he said.

The government worries particularly about the surge in housing costs in financial centers such as Shanghai, where property prices in the first quarter of 2004 rose by 28.3 percent from the same period a year earlier. The cabinet-level State Development and Reform Commission has repeatedly cautioned against continued reckless investment in overheated sectors such as steel, aluminum, and cement, but the warnings have been largely ignored.

Fixed-asset investment rose by 43 percent in the first quarter of this year. Banks and local governments seem to be the biggest offenders in extending easy credit. While investment by central government rose by 12 percent in the first two months of 2004, local government investment surged by almost 65 percent, official media reported.

Gregory Chow, an economics professor at Princeton University, agreed that speculative real estate values in cities like Shanghai were likely to take a hit. But he said he expected overall economic growth to remain strong.

�It�s not a recession in any Western sense of the word. It�s just a slower growth,� Chow said.

Hufbauer agreed that the economy would continue to expand, albeit at a slower pace. �People might say, well, it�s going to go into negative growth for several years or down to flat growth for several years. I don�t think that will be the outcome. I think there�ll be a big drop in real asset prices, especially of the real estate.�

�There might be some fire sales by some of these state banks of their non-performing loans [and] mortgages. But the economy seriously might still be growing at, say, 5 percent or upwards�5, 6, or 7 percent�even during this kind of rolling readjustment,� Hufbauer said.

But economists still cited widespread concerns that a change from fast growth to slower growth could come suddenly, particularly if the central bank was forced to raise interest rates to head off inflation. #####


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