China Still Risks Hard Landing Despite Measures


2004.08.16
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China's economy still risks the pain of a hard landing unless administrative steps aimed at cooling overinvestment in certain sectors take effect soon, economists say.

"I think that the Chinese economy is in serious danger of coming into a hard landing unless there is a serious attempt to scale back the scope of the investment projects which they’ve undertaken and are being undertaken in the quasi-private sector," Harvard University economics professor Dale Jorgenson told RFA's Wu dialect service.

Jorgenson said the danger to China's economy was far from over and that a decision to cancel the recent administrative measures would only make matters worse.

Others agreed, pointing to a huge bubble in property prices in major cities and oversaturation of consumer markets.

“I’m of the school that thinks that there is a tremendous bubble building in China,” David Bachman, chairman of the China Studies Program at the University of Washington in Seattle, said. “I worry more about the hard landing than I do about overheating at this time.”

Bachman said he felt it was too soon to begin removing measures to cool down the Chinese economy. “All the real estate and all the construction don’t necessarily at this time have ready markets for what gets done,” he said.

Officials have argued that economic figures for the first half of this year prove that the government’s tightening policies have been working as planned. China’s growth in gross domestic product slowed from 9.8 percent in the first quarter to 9.6 percent in the second quarter of this year, after growth of 9.9 percent in the fourth quarter of last year.

But a controversial upward adjustment to second-quarter GDP figures for 2003 made this year’s growth numbers look smaller than they otherwise would be. The annual comparison is to a period that was affected by the SARS virus last year, but now the government says that growth during the outbreak was more was first thought.

On July 23, President Hu Jintao was quoted by official media as saying that the “economy is moving in the right direction as anticipated by economic policymakers.” At the same meeting, Premier Wen Jiabao agreed that the “whole economy is moving toward our anticipated targets of macro-economic regulation,” Xinhua news agency said.

Gregory Chow, a Princeton University economics professor, said officials were struggling with the effects of excessive money supply built up by huge inflows of foreign currency. That gave banks too much money and brought pressure on them to lend. Chow said the situation was made worse by the government’s refusal to let the yuan Renminbi appreciate in free currency trading.

“We all know that the administrative means to slow down the economy has some effect, but how much effect has occurred and how much more they should do is very difficult to say,” Chow said.

“But we can look at the reason why there was such an economic expansion, and I believe that the reason was the rapid increase in money supply beginning in 2002,” he said.

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