Chinese Boom Accelerates Again
Both economic growth and inflation rose sharply in China in the fourth quarter. GDP Growth rose to 10.7%, while industrial production rose 18.5% and retail sales by 17.5% while consumer price inflation rose to 1.9%.
A key reason for this combination of rising economic growth and inflation is an excessive rate of money supply growth with M2 rising 27.7%. The Chinese central bank appears to realize that this is way too high and have already started to take steps to rein it in. However, the steps taken so far will prove to be insufficient, forcing them to take further steps. If they act forcefully soon, then malinvestments and asset price bubbles can be contained to manageable levels. If however they do not act forcefully soon, then China faces a more serious future crisis.
It would be wrong however to view current growth as merely a result of an excessive credit boom. It is mainly the structural strengths of the Chinese economy that drives its growth and in 2009 important progress was made. In 2009, China overtook Germany as the world's biggest exporter and America as the world's biggest car market (and market for many other durable consumer goods). Unless there is a really dramatic rally (which is unlikely) in the yen, China will in 2010 surpass Japan as the second biggest economy (on a purchasing power parity basis China is already a lot bigger) in the world.
A key reason for this combination of rising economic growth and inflation is an excessive rate of money supply growth with M2 rising 27.7%. The Chinese central bank appears to realize that this is way too high and have already started to take steps to rein it in. However, the steps taken so far will prove to be insufficient, forcing them to take further steps. If they act forcefully soon, then malinvestments and asset price bubbles can be contained to manageable levels. If however they do not act forcefully soon, then China faces a more serious future crisis.
It would be wrong however to view current growth as merely a result of an excessive credit boom. It is mainly the structural strengths of the Chinese economy that drives its growth and in 2009 important progress was made. In 2009, China overtook Germany as the world's biggest exporter and America as the world's biggest car market (and market for many other durable consumer goods). Unless there is a really dramatic rally (which is unlikely) in the yen, China will in 2010 surpass Japan as the second biggest economy (on a purchasing power parity basis China is already a lot bigger) in the world.
posted by stefankarlsson at 7:31 AM
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