From Overseas Press

China earns plaudits for economic recovery

Updated: 2010-06-30 16:41
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While China's economy still has a lopsided quality to it and its role in global rebalancing could start to become more politically controversial, there are also signs of progress in the shift to a more sustainable growth model, said an article in the Financial Times on June 25.

According to the article, China has made a remarkable recovery from the global financial crisis, growing by 8.7 percent in 2009, fueled by a decisive and huge fiscal and monetary stimulus program. But China is still confronted with much outside criticism on its economy.

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The article pointed out that the principal criticism involves over-investment and overheating. Critics warned that the surge in bank lending last year, which doubled from the year before, to 9.6 trillion yuan ($1.41 trillion), could end up in a pile of bad debts. And the main sign of overheating is the housing market, where many cities have seen rapid increases in prices since the start of last year. China's economy relying too much on investment where consumption plays too small a role, as well as its exchange rate, is also being taxed.

However, changes are under way, said the article. The government has tried to prevent overheating and over-investment from running out of control. "It has scaled back the pace of new bank loans since last autumn, restricted approvals for new infrastructure projects and ordered banks to reduce exposure to local government investment companies. In the housing market, the authorities have introduced a slew of policies to limit speculative buying," said the article.

Also, there are signs that consumption is beginning to play a bigger role in Chinese economy. Household consumption grew rapidly last year, despite the crisis, said the article. Li Daokui, a professor at Tsinghua University and a member of the Chinese central bank's monetary policy committee, was quoted as saying that Chinese consumers are beginning to consume.

As to the last piece of the Chinese rebalancing equation – and the most controversial –China's exchange rate, China abandoned its currency peg with the dollar and began appreciating the renminbi on June 21, although the central bank stressed that any changes in the exchange rate would only be very gradual.