China’s economy roared into 2010 like a lion
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China’s economy roared into 2010 like a lion. Germany has now lost its position as world’s top exporter. China officially became world’s number one car market. We’ve noted those developments before, but they became official today. And there’s new momentum for the Chinese economy to discuss.
State media have just announced that Chinese banks gave out $88 billion in loans during the first week of 2010. That’s a bigger flood of money into the economy than the loans bundled during the boom months of October and November, 2009. This frenetic pace of lending will stimulate even more economic action, but is it too much?
Sixteen percent GDP growth for China in 2010; that’s the latest prediction! It’s an explosive new number compared to growth rate projections of two and three percent for the healthiest western economies.
In the official China Securities Journal, the Chinese Academy of Social Sciences declares, “If the government continues with the same strength of macro-economic stimulus as in 2009, GDP growth of 16% is possible and there could be notable economic overheating in 2010.”
Of course there have been hints and speculation that the government will try to rein in overheated sections of the economy. Last week’s miniscule interest rate rise and hints that banks may raise their reserve ratios are two factors that led to a rush for new loans in the first week of this year.
Beijing is walking a fine line between stimulating the economy as much as possible and applying the brakes wherever bubbles appear.
International trade is booming again and there’s no likelihood that Beijing will do anything to stop this revival. China’s exports grew 17.7 percent last month, the first increase in more than a year. Imports rose to a new record. This is pure red meat to an economy which needs to rebuild industries and employment after the global financial crisis.
Chinese stocks traded in Shanghai are up on economic optimism and on news that China's cabinet has approved market-reform measures such as the launch of index futures and short-selling. That may slowly close the valuation margin between stocks traded on the mainland and those traded in Hong Kong and New York.
Record lending may be further tightened in 2010 as the property sector continues to boom. About one-sixth of China's nearly 10 trillion yuan in new loans last year flowed into the property sector.
Beijing has vowed to combat excessively fast price increases. The State Council (cabinet) has urged local authorities to increase the supply of affordable housing. Beijing has vowed to curb house buying for “investment and speculation purposes” and keep the minimum down payment for second homes at 40 percent.
It would be a mistake to read this, as many have, that Beijing is clamping down on its world-beating economic expansion. China is intent on leading the world in growth while controlling overheating in select sectors, to prevent the kind of bubble that blew apart the U.S. economy.
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