The Go Go years
The WSJ mixes economic news with a little pop sociology in reporting on China’s continued astonishing growth:
China’s statistics bureau announced yesterday that gross domestic product, the value of all goods and services the nation produces, expanded 11.1% in the first quarter from a year ago, an acceleration from the 10.4% year-over-year growth recorded for the previous quarter. All major indicators — including retail sales, factory output, capital spending and inflation — accelerated during the period, raising new worries about excesses in an economy that has grown by more than 10% a year for four straight years…
China’s trade surplus doubled in the first quarter, to $46.4 billion, and urban fixed-asset investment expanded 25.3%, accelerating from last year’s 24.5% pace. Nicholas Lardy, a China specialist at the Institute for International Economics in Washington, said the new report shows the Chinese have “still not been successful at working toward the more balanced growth strategy that they talk about.” Exports and business investment remain very strong while “consumers are still socking away a lot” — a combination that will keep China’s surplus with the rest of the world growing…
China, which boasts the world’s fourth-largest economy, has had a record-breaking run of growth that is the envy of many. But this has been accompanied by rising inequality and environmental degradation — and, some economists believe, an increasing risk of crisis in its still-immature financial system and capital markets.
The sources of China’s success are becoming some of its biggest problems. Its world-beating export machine is piling up ever-larger trade surpluses, heightening political friction with the U.S. and Europe. Chinese companies and local government bodies have also been pouring money into factories, industrial parks, toll roads and other projects at such an astonishing rate that it raises worries they are building many wasteful or unneeded projects that will create a drag on the economy in the future…
Mr. Lardy, the Washington economist, said interest rates are increasingly important in China. The state sector now gets only 40% of the loans, down from about 80% a decade ago, and higher rates are likely to slow borrowing by consumers, small businesses and corporations outside the state sector. “Interest rates are way too low for an economy growing at 11%,” he said. Allowing the currency to rise would give the Chinese central bank more maneuvering room to raise rates, he added. The latest International Monetary Fund forecast for the world economy predicts China will grow by 10% this year and only slightly slower — at 9.5% — next year.
China’s economic performance continues to amaze, but we thought we detected some more prominent notes of concern in this Andrew Batson story. Growth at 11%, fixed asset investment expanding at 25% a year, rising trade tensions, and borrowing rates of only 6% fueling the runaway growth — these are indeed continuing sources of concern. However, we confess to being amused at the “rising inequality” comment. China has something like 800 million dirt-poor farmers; as the city dwellers get richer, the short term result is obviously rising inequality — but in our view the overall trend is not the problem, it is the solution.