Economist: China’s reheated economy

From China’s economy re-accelerated in the last quarter of 2004, despite official efforts to curb rampant investment. Is it growing too fast to keep its balance?

On Tuesday, January 25th, the Chinese authorities sheepishly confessed that the economy beat expectations last year, growing by 9.5%. It finished the year particularly strongly, growing at an annual pace of almost 13% in the last three months, according to J.P. Morgan. Anywhere else, this would be cause for celebration. But in China, the firecrackers remain unlit. Instead, analysts and investors are trying to reassure themselves that this is not bad news.

Economists, who freely mix their metaphors, have spent the past year worrying that China is “overheating” and hoping that it will make a “soft landing”. Their worries reached a peak in the spring, when China’s banks were lending freely, investment was expanding blindly and prices were rising quickly. This anxiety was shared by the Chinese authorities. In April, Wen Jiabao, the prime minister, said China would take “very forceful measures” to cool the economy. The authorities imposed curbs on investment in sectors such as steel, aluminium and cement, refused to release land to developers and threatened to impose price controls if inflation remained out of hand. In October, the central bank raised interest rates (if only by a little) for the first time in nine years.

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