In early 2009, when many giant
economies of the world such as the
US, Japan, the UK, etc., were shrinking, China, the third
largest economy in the world in terms of GDP, was expanding at a rapid pace.
The mainland's little or no exposure to the offshore
subprime investments, strong infrastructure and on top of all,
huge stimulus packages shelled out by the Chinese authorities, shielded
the economy well from the worst financial crisis ever since the Great Depression
of 1930s. And keeping up the growth momentum, the economy leapt at a
rapid pace of close to 12% in the first quarter of this year—the highest in last
three years. This robust growth figure brazenly vindicates that the financial crisis
could not inflict much damage to the Chinese economy, but at the same time it
raises questions about the dangers of overheating. Property prices in major cities
such as Shanghai and Shenzhen, have increased, stoking fears of overall
inflation. The broadest measure of money supply (M2) has jumped by 22.5% in
March. These are definitely ominous signs. The Chinese authorities took bold
and prompt steps to thwart the crisis and it overachieved its goal, and
interestingly the economy is now vrooming at such
a pace with distinct signs of overheating that it has provoked many economists
to surmise that the economy needs to be slowed down. Now the pace of growth
has put pressure on Beijing to consider tougher tightening measures,
including appreciating the exchange rate and increasing interest rates.
According to China's statistics bureau, gross domestic product rose 11.9%
in the first quarter of 2010 from a year earlier—that was more than the
median 11.7% estimate in a Bloomberg News survey. The country is all set
to surpass Japan as the second-largest economy in the world this year. Also,
the Paris-based Organization for Economic Cooperation and Development
(OECD) predicts that the country will shortly contribute a third of global growth.
Furthermore, recently the country has surpassed Germany as the largest
exporter in the world and the US as the top automobile market. After temporary
calmness, exports rebounded and industrial production expanded by the most in
five years in January and February, underscoring a recovery at Chinese
factories. Inflation in China moved up in April after food and house prices escalated
and bank lending increased. Consumer price index for the month of April
was up 2.8% from a year ago, the highest rate in one and half year, and
property inflation jumped to 12.8%. According to, Li
Xiaochao, China statistics bureau spokesman, while rising food prices
were primarily responsible for the inflation in the first quarter, labor and raw
material costs are also moving northwards, which means that it may be difficult to
contain inflation at the government stipulated rate of 3% for the year. The National
Development and Reform Commission has independently predicted that the
inflation may hover around 2.5% in the first half of the year. Furthermore,
industrial production rose 18.1% in March, and retail sales increased 18%,
underlining ceaseless economic activities in the mainland. Automobile sales
jumped 76% during the first quarter of the year, with sales of Mercedes-Benz (China)
being doubled.
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