China: Is Economic Growth Out of Control? – Pablo Bustelo

From Real Instituto Elcano:

China’s strong GDP growth in the last few months (11.3% in the second quarter of 2006) has led some analysts to believe that there are signs that the Asian giant’s growth could be out of control. According to this view, the cooling measures implemented by the government since the end of 2004 have failed. Excess lending and investment would already be triggering massive surplus capacity in many sectors, which, in the short term, could lead to a decline in prices and profits, causing businesses to fold and creating major difficulties for the financial sector and, in short, a hard landing for the economy. In line with this current of opinion, deceleration in Chinese growth could be extremely severe. Some specialists even talk of a rate of GDP growth of barely 5% in 2007.

If a scenario of this kind does materialise, the impact on the rest of the world’s economy would be highly significant, since China ranks fourth in terms of GDP in the world, it attracts huge foreign investment (US$600 billion) and it has been the world’s growth driver for the last few years. [Full Text]

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