Going Global, Part 19: Is China's GDP a Bad Moon Rising?
BY Nitasha Tiku
China announced today that its first quarter GDP grew 11.1 percent year-over-year, sparking concerns of overheating for the country's as yet immature financial system and capital market. According to the National Bureau of Statistics, exports were up 27.8 percent, profits from industrial enterprises rose 43.8 percent, and wholesale and retail sales were up 14.7 percent.
Economists say the tremendous first quarter growth, one of the highest jumps in a decade, was distorted somewhat by the Chinese government's own investment into the economy. Plans to build infrastructure, in the form of highways, railways, factories, and industrial parks, acted as a catalyst for excessive lending. "This is the first quarter blowout, but we don't expect this to continue," Jonathan Anderson chief Asia economist at UBS told the New York Times, "There were a lot of wacky thing happening in the first quarter."
Meanwhile, China's enviable growth has given rise to some of its biggest problems. Soaring exports are causing friction with the U.S. and the U.K., its major markets, as the West watches their trade deficits rise. And while furious investment in China's infrastructure may have been a boon for its domestic market, it also triggered fears of a long-term drag on the economy from unnecessary projects.
Experts expect the Chinese government to respond to concerns over first quarter figures by gradually raising interest rates, just as it has been. "The root of overheated investment is China's excessively low interest rates," Ha Jiming, chief economist of China International Corp in Beijing explains in the Wall Street Journal. Officials also face pressure to allow the yuan to appreciate more quickly.
What do you think about China's GDP growth? Is it overheating? Does your business rely on Chinese exports? How will you be affected if China increases interest rates in an effort to curb growth?
Last updated: Apr 19, 2007
Reporter NITASHA TIKU covers technology, finance, green business, and social entrepreneurship for Inc. magazine and contributes to the staff’s daily links blog. Her work has appeared in New York magazine, The Villager, Chelsea Now, and on nymag.com. She lives in Brooklyn, New York. @nitashatiku